Jerry Springer made himself famous by having a television show in which he encouraged people to say and do outrageous things. The Washington Post applies the same standard to people who rant about the debt and deficit on its opinion page.
Today’s entry is from Marc Thiessen, who argues that the deficit is out of control due to excessive spending. Of course as all budget wonks know the reason that we have large deficits today is that the economy plunged after the collapse of the housing bubble. In fact, one of the best pieces making this simple point was written by the Post’s own Evan Soltas.
The economic downturn caused tax collections to plummet and led to an increase in benefit payments for items like unemployment insurance. It also led to deliberate efforts to boost the economy with temporary tax cuts, like the payroll tax holiday and temporary spending measures. However, the structural deficit is little changed from what it was before the economic downturn when the debt to GDP ratio was falling.
But hey, when it comes to discussions of debt and deficit the Post doesn’t have time for numbers. Let’s see some chairs flying, it’s the WAPO opinion pages!
Jerry Springer made himself famous by having a television show in which he encouraged people to say and do outrageous things. The Washington Post applies the same standard to people who rant about the debt and deficit on its opinion page.
Today’s entry is from Marc Thiessen, who argues that the deficit is out of control due to excessive spending. Of course as all budget wonks know the reason that we have large deficits today is that the economy plunged after the collapse of the housing bubble. In fact, one of the best pieces making this simple point was written by the Post’s own Evan Soltas.
The economic downturn caused tax collections to plummet and led to an increase in benefit payments for items like unemployment insurance. It also led to deliberate efforts to boost the economy with temporary tax cuts, like the payroll tax holiday and temporary spending measures. However, the structural deficit is little changed from what it was before the economic downturn when the debt to GDP ratio was falling.
But hey, when it comes to discussions of debt and deficit the Post doesn’t have time for numbers. Let’s see some chairs flying, it’s the WAPO opinion pages!
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The polite position in Washington policy circles is that politics has yielded to extremes in both parties. That is a really nice children’s tale, but it is more than a bit absurd for anyone interested in reality. While the Republicans have adopted many extreme positions, Richard Nixon and Dwight Eisenhower would be very comfortable with the center position in the modern Democratic Party.
Michael Gerson helped to clarify the fundamental asymmetry between the two parties’ positions in his column today. He complained that President Obama forced Congressional Republicans to vote for a tax increase for the first time in more than twenty years, violating their fundamental opposition to tax increases. (As a technical matter, the votes took place after taxes had already risen on January 1, so they were effectively voting for tax cuts for most households.) However, he complains that there was no quid pro quo with Democrats forced to support cuts to Social Security and Medicare.
This complaint shows well the nature of the asymmetry. While most Democrats are willing to support tax increases, especially on the wealthy, most Republicans consistently tell pollsters that they are opposed to cuts in Social Security and Medicare. In fact, there is not very much difference between Democratic and Republican attitudes towards these programs. The bases of both parties support them overwhelmingly.
Gerson is unhappy that President Obama refused to take a position that was not only unpopular with the Democratic base but also unpopular with the Republican base. This shows well the extremism of the Republican leadership in Washington.
It is also important to note that as a matter of arithmetic, support for Social Security and Medicare virtually necessitates higher taxes at some point, especially if health care costs are not brought under control. With a rising share of the population over age 65, these programs already cost considerably more now than they did forty years ago, measured as a share of GDP. They will cost still more in another twenty years.
Unless we are willing to see a substantial shrinkage in the rest of the government, it is impossible to support the increased spending on these programs without ever raising taxes. This makes the difference between Democrats and Republicans on this point primarily the fact that Democrats are willing to accept arithmetic whereas Republicans are trying to deny it.
The polite position in Washington policy circles is that politics has yielded to extremes in both parties. That is a really nice children’s tale, but it is more than a bit absurd for anyone interested in reality. While the Republicans have adopted many extreme positions, Richard Nixon and Dwight Eisenhower would be very comfortable with the center position in the modern Democratic Party.
Michael Gerson helped to clarify the fundamental asymmetry between the two parties’ positions in his column today. He complained that President Obama forced Congressional Republicans to vote for a tax increase for the first time in more than twenty years, violating their fundamental opposition to tax increases. (As a technical matter, the votes took place after taxes had already risen on January 1, so they were effectively voting for tax cuts for most households.) However, he complains that there was no quid pro quo with Democrats forced to support cuts to Social Security and Medicare.
This complaint shows well the nature of the asymmetry. While most Democrats are willing to support tax increases, especially on the wealthy, most Republicans consistently tell pollsters that they are opposed to cuts in Social Security and Medicare. In fact, there is not very much difference between Democratic and Republican attitudes towards these programs. The bases of both parties support them overwhelmingly.
Gerson is unhappy that President Obama refused to take a position that was not only unpopular with the Democratic base but also unpopular with the Republican base. This shows well the extremism of the Republican leadership in Washington.
It is also important to note that as a matter of arithmetic, support for Social Security and Medicare virtually necessitates higher taxes at some point, especially if health care costs are not brought under control. With a rising share of the population over age 65, these programs already cost considerably more now than they did forty years ago, measured as a share of GDP. They will cost still more in another twenty years.
Unless we are willing to see a substantial shrinkage in the rest of the government, it is impossible to support the increased spending on these programs without ever raising taxes. This makes the difference between Democrats and Republicans on this point primarily the fact that Democrats are willing to accept arithmetic whereas Republicans are trying to deny it.
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Charles Lane is on the money in his column today. There is no good reason for Medicare not to make public the procedures for which it is reimbursing doctors.
While most doctors are honest, many are not. If a doctor is carrying through an expensive procedure far more frequently than his peers, then people are right to be asking questions. This is not just an issue of ripping off Medicare, it is also a question of bad medicine. No one should ever be put through an unnecessary medical procedure to line a doctor’s pockets.
Charles Lane is on the money in his column today. There is no good reason for Medicare not to make public the procedures for which it is reimbursing doctors.
While most doctors are honest, many are not. If a doctor is carrying through an expensive procedure far more frequently than his peers, then people are right to be asking questions. This is not just an issue of ripping off Medicare, it is also a question of bad medicine. No one should ever be put through an unnecessary medical procedure to line a doctor’s pockets.
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The NYT has a confusing analysis of the China’s economy in which it tells readers that the country suffers from a labor shortage because employers in certain sectors (nursing homes and restaurants) can’t afford to pay workers enough to pull them away from other sectors. This is not evidence of a labor shortage, this is the way capitalist economies work.
As an economy grows and goes through sectoral shifts there will always be businesses and sometimes whole sectors that collapse because they are no longer competitive. For example, in the United States millions of farms went out of business because they could not afford to pay workers as much money as they could earn in manufacturing. This did not mean that the United States had a labor shortage, it simply meant that many farms had become uncompetitive.
Similarly, if China has restaurants or nursing homes that can’t afford to pay the prevailing wage then it means that they are not competitive. If there is real demand for these services in China, then they should be able to raise their prices enough to pay higher wages. (There may be demand for nursing home care which is not being met because people cannot afford to pay for it, but this is a problem of income distribution, not evidence of a labor shortage.)
The NYT has a confusing analysis of the China’s economy in which it tells readers that the country suffers from a labor shortage because employers in certain sectors (nursing homes and restaurants) can’t afford to pay workers enough to pull them away from other sectors. This is not evidence of a labor shortage, this is the way capitalist economies work.
As an economy grows and goes through sectoral shifts there will always be businesses and sometimes whole sectors that collapse because they are no longer competitive. For example, in the United States millions of farms went out of business because they could not afford to pay workers as much money as they could earn in manufacturing. This did not mean that the United States had a labor shortage, it simply meant that many farms had become uncompetitive.
Similarly, if China has restaurants or nursing homes that can’t afford to pay the prevailing wage then it means that they are not competitive. If there is real demand for these services in China, then they should be able to raise their prices enough to pay higher wages. (There may be demand for nursing home care which is not being met because people cannot afford to pay for it, but this is a problem of income distribution, not evidence of a labor shortage.)
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The NYT and others have reported on the death by suicide of Aaron Swartz at age 26. Aaron was a computer whiz who made major breakthroughs in software while still in his early teens. I knew Aaron because he e-mailed me with questions about some of my writings. After reading my book The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer, he asked me why we hadn’t made it available in html. When I told him that no one on my staff had the time, he volunteered to do it himself. We continued to occasionally exchange e-mails and met in person a few times. He clearly was a serious committed person.
I have no special insight into the events surrounding his suicide. He had in the past had problems with depression, but there can be little doubt that he was very troubled by the prosecution hanging over his head. The Justice Department was pressing charges after he had been caught trying to download a huge number of academic articles through the M.I.T. computer system. The point was to make this work freely available to the public at large. While both M.I.T. and JSTOR, the system he was alleged to be hacking, asked to have the charges dropped, the Justice Department insisted on pressing the case, threatening Aaron with a lengthy prison sentence.
It is difficult not to be outraged by this part of the story. Here is an administration that could find nothing to prosecute at the Wall Street banks who enriched themselves by passing on hundreds of billions of dollars of fraudulent mortgages in mortgage backed securities and complex derivative instruments, but found the time and resources to prosecute a young man who wanted to make academic research freely available to the world.
It would be an appropriate tribute to Aaron if his death prompted a re-examination of copyright and patent laws. These laws are clearly acting as an impediment to innovation and progress. If economists had the allegiance to efficiency that they claim, and not just serving the rich and powerful, the profession would be devoting its energies to finding more modern mechanisms for promoting creative work and innovation.
Unfortunately most economists are comfortable with the status quo, regardless of how corrupt it might be. Let’s hope that Aaron’s tragic death can be an inspiration to revamping intellectual property and making a better world.
Addendum: typos fixed from earlier posting, thanks to Robert Salzberg.
The NYT and others have reported on the death by suicide of Aaron Swartz at age 26. Aaron was a computer whiz who made major breakthroughs in software while still in his early teens. I knew Aaron because he e-mailed me with questions about some of my writings. After reading my book The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer, he asked me why we hadn’t made it available in html. When I told him that no one on my staff had the time, he volunteered to do it himself. We continued to occasionally exchange e-mails and met in person a few times. He clearly was a serious committed person.
I have no special insight into the events surrounding his suicide. He had in the past had problems with depression, but there can be little doubt that he was very troubled by the prosecution hanging over his head. The Justice Department was pressing charges after he had been caught trying to download a huge number of academic articles through the M.I.T. computer system. The point was to make this work freely available to the public at large. While both M.I.T. and JSTOR, the system he was alleged to be hacking, asked to have the charges dropped, the Justice Department insisted on pressing the case, threatening Aaron with a lengthy prison sentence.
It is difficult not to be outraged by this part of the story. Here is an administration that could find nothing to prosecute at the Wall Street banks who enriched themselves by passing on hundreds of billions of dollars of fraudulent mortgages in mortgage backed securities and complex derivative instruments, but found the time and resources to prosecute a young man who wanted to make academic research freely available to the world.
It would be an appropriate tribute to Aaron if his death prompted a re-examination of copyright and patent laws. These laws are clearly acting as an impediment to innovation and progress. If economists had the allegiance to efficiency that they claim, and not just serving the rich and powerful, the profession would be devoting its energies to finding more modern mechanisms for promoting creative work and innovation.
Unfortunately most economists are comfortable with the status quo, regardless of how corrupt it might be. Let’s hope that Aaron’s tragic death can be an inspiration to revamping intellectual property and making a better world.
Addendum: typos fixed from earlier posting, thanks to Robert Salzberg.
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“Chained CPI” is the new magic phrase going around Washington these days. This is how the government can cut Social Security and pretend it is not really cutting Social Security.
If anyone has not yet heard the story, the plan is to change the indexation formula for the annual cost of living adjustment by using the chained CPI to measure inflation. It’s not worth going into the details (the people proposing it don’t care, why should you?), but the point is that the chained CPI would reduce the annual adjustment by 0.3 percentage points.
This may sound trivial but it adds up over time. After ten years a retiree’s benefits would be 3 percent lower, after twenty years 6 percent lower and someone surviving to collect benefits for thirty years would see a 9 percent cut. If we assume the average retiree collects benefits for 20 years, this amounts to a 3 percent cut in total benefits. If that sounds small, ask the “job creators” about the impact of a 3 percentage point increase in their tax rate.
Anyhow, a NYT editorial on the topic makes all the right points, including an obvious one, if the concern is making the indexation formula more accurate we can have the Bureau of Labor Statistics (BLS) construct a full cost of living index for the elderly. An experimental index that BLS already produces shows that the current cost of living adjustment is actually less than the rate of inflation seen by the elderly. There is a long way from this experimental index to a full elderly CPI, but given that we will index $10 trillion in Social Security benefits over the next decade, it might be worth going this route.
“Chained CPI” is the new magic phrase going around Washington these days. This is how the government can cut Social Security and pretend it is not really cutting Social Security.
If anyone has not yet heard the story, the plan is to change the indexation formula for the annual cost of living adjustment by using the chained CPI to measure inflation. It’s not worth going into the details (the people proposing it don’t care, why should you?), but the point is that the chained CPI would reduce the annual adjustment by 0.3 percentage points.
This may sound trivial but it adds up over time. After ten years a retiree’s benefits would be 3 percent lower, after twenty years 6 percent lower and someone surviving to collect benefits for thirty years would see a 9 percent cut. If we assume the average retiree collects benefits for 20 years, this amounts to a 3 percent cut in total benefits. If that sounds small, ask the “job creators” about the impact of a 3 percentage point increase in their tax rate.
Anyhow, a NYT editorial on the topic makes all the right points, including an obvious one, if the concern is making the indexation formula more accurate we can have the Bureau of Labor Statistics (BLS) construct a full cost of living index for the elderly. An experimental index that BLS already produces shows that the current cost of living adjustment is actually less than the rate of inflation seen by the elderly. There is a long way from this experimental index to a full elderly CPI, but given that we will index $10 trillion in Social Security benefits over the next decade, it might be worth going this route.
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That’s what Catherine Rampell told readers in her Economix blogpost today. The piece comments:
“From an economic standpoint, it’s actually a bit surprising that Americans don’t see greater tensions between the generations. Medicare and other public spending on the elderly (such as public pensions at the state level) has been gobbling up an increasing share of government budgets, which crowds out spending on the young and raises their future tax burdens.”
Americans probably recognize that the high cost of Medicare is primarily due to the high prices charged by drug companies, medical suppliers, and doctors. That would be a basis for class conflict, but not getting mad at their parents. They probably also understand that public pensions are part of the pay of public employees. This is not a generational issue, it’s a question of the pay levels of public employees, which research shows to be comparable to the pay of private employees with comparable education levels.
That’s what Catherine Rampell told readers in her Economix blogpost today. The piece comments:
“From an economic standpoint, it’s actually a bit surprising that Americans don’t see greater tensions between the generations. Medicare and other public spending on the elderly (such as public pensions at the state level) has been gobbling up an increasing share of government budgets, which crowds out spending on the young and raises their future tax burdens.”
Americans probably recognize that the high cost of Medicare is primarily due to the high prices charged by drug companies, medical suppliers, and doctors. That would be a basis for class conflict, but not getting mad at their parents. They probably also understand that public pensions are part of the pay of public employees. This is not a generational issue, it’s a question of the pay levels of public employees, which research shows to be comparable to the pay of private employees with comparable education levels.
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Morning Edition had a nice piece on the large and growing black market in prescription drugs as people increasing turn to sellers outside of the United States to buy drugs at prices that are far lower than the patent protected prices in the United States. As the piece explains, the drugs purchased through these channels are of uneven quality. This is exactly how economic theory predicts people would respond to a government intervention that raises drug prices by many thousand percent above their free market price.
Morning Edition had a nice piece on the large and growing black market in prescription drugs as people increasing turn to sellers outside of the United States to buy drugs at prices that are far lower than the patent protected prices in the United States. As the piece explains, the drugs purchased through these channels are of uneven quality. This is exactly how economic theory predicts people would respond to a government intervention that raises drug prices by many thousand percent above their free market price.
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It is incredibly annoying to see a serious paper tell readers that Germany’s unemployment rate is 6.9 percent. This is the measure of the unemployment rate using the German government’s methodology. This methodology treats people who are working part-time but would like full-time employment as being unemployed. That is not how they are treated in the U.S. data. They would simply be counted as employed.
This error is especially egregious because anyone can quickly find Germany’s unemployment rate calculated with a methodology that is comparable to the U.S. methodology by going to the OECD’s website. There one finds that Germany’s unemployment rate in October (the most recent data available) was 5.4 percent.
There is no excuse for a news story to ever report the German government’s measure of unemployment without explaining the difference in methodology. This badly misleads readers about the state of the German labor market.
It is incredibly annoying to see a serious paper tell readers that Germany’s unemployment rate is 6.9 percent. This is the measure of the unemployment rate using the German government’s methodology. This methodology treats people who are working part-time but would like full-time employment as being unemployed. That is not how they are treated in the U.S. data. They would simply be counted as employed.
This error is especially egregious because anyone can quickly find Germany’s unemployment rate calculated with a methodology that is comparable to the U.S. methodology by going to the OECD’s website. There one finds that Germany’s unemployment rate in October (the most recent data available) was 5.4 percent.
There is no excuse for a news story to ever report the German government’s measure of unemployment without explaining the difference in methodology. This badly misleads readers about the state of the German labor market.
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It seems not, since neither the NYT nor the Washington Post seemed to think that the $6.6 billion jump in the monthly trade deficit that Census Bureau reported on Friday was worth mentioning. Fans of arithmetic (a tiny minority among DC policy types) like to point out that a large trade deficit implies negative national savings. In other words, if we have a trade deficit then by definition the United States as a whole has a negative saving rate.
This means that we either must have budget deficits (negative public savings) or negative private savings, or both. There is no way around this fact. There is now a holy jihad in progress against the budget deficit in Washington, which means that all right thinking people don’t want to our negative national savings to mean negative public saving.
The implication would then be that we want negative private saving. This could come through an investment boom, but only believers in Santa Claus think that investment is likely to expand much as a share of GDP. It is not easy to produce large increases in investment and we never have in the whole post-war period. So even though Serious People in Washington might talk about some huge uptick in investment, serious people don’t believe it.
This means that the only way to balance a large trade deficit is with very low household savings, as we had during the years of the stock and housing bubbles when ephemeral wealth lead to a consumption boom. That sounds like a great idea, right?
So that’s where the arithmetic gets you if we have a large trade deficit as the Census Bureau reported on Friday. The public should care about this and so should the newspapers that purport to inform us.
Addendum: More on Accounting Identities
In the comments and e-mails readers have asked me about accounting identities. The answer is yes, they are incredibly important. If you don’t eat, drink and sleep these identities, then you do not understand the economy, end of story. Identities are by definition true, there is no way around them.
I have heard policy types tell me that they don’t like accounting identities. That’s fine, I may not be very happy that I will be one year older a year from now if I am still alive. Nonetheless, both are inescapably true. If you don’t understand how the identities work, then you don’t understand the economy. Here’s a brief primer that may be helpful. You can find a discussion in every intro textbook as well.
If you find this too complicated or not worth your time, just remember, you do not understand how the economy works. Got it?
It seems not, since neither the NYT nor the Washington Post seemed to think that the $6.6 billion jump in the monthly trade deficit that Census Bureau reported on Friday was worth mentioning. Fans of arithmetic (a tiny minority among DC policy types) like to point out that a large trade deficit implies negative national savings. In other words, if we have a trade deficit then by definition the United States as a whole has a negative saving rate.
This means that we either must have budget deficits (negative public savings) or negative private savings, or both. There is no way around this fact. There is now a holy jihad in progress against the budget deficit in Washington, which means that all right thinking people don’t want to our negative national savings to mean negative public saving.
The implication would then be that we want negative private saving. This could come through an investment boom, but only believers in Santa Claus think that investment is likely to expand much as a share of GDP. It is not easy to produce large increases in investment and we never have in the whole post-war period. So even though Serious People in Washington might talk about some huge uptick in investment, serious people don’t believe it.
This means that the only way to balance a large trade deficit is with very low household savings, as we had during the years of the stock and housing bubbles when ephemeral wealth lead to a consumption boom. That sounds like a great idea, right?
So that’s where the arithmetic gets you if we have a large trade deficit as the Census Bureau reported on Friday. The public should care about this and so should the newspapers that purport to inform us.
Addendum: More on Accounting Identities
In the comments and e-mails readers have asked me about accounting identities. The answer is yes, they are incredibly important. If you don’t eat, drink and sleep these identities, then you do not understand the economy, end of story. Identities are by definition true, there is no way around them.
I have heard policy types tell me that they don’t like accounting identities. That’s fine, I may not be very happy that I will be one year older a year from now if I am still alive. Nonetheless, both are inescapably true. If you don’t understand how the identities work, then you don’t understand the economy. Here’s a brief primer that may be helpful. You can find a discussion in every intro textbook as well.
If you find this too complicated or not worth your time, just remember, you do not understand how the economy works. Got it?
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