If they are, the paper should charge more for its subscriptions. Come on folks, a sentence that tells readers:
“once the target numbers are settled, negotiators would have to come up with a down payment on deficit reduction to show the world’s financial markets that Washington is serious.”
has no place in a serious newspaper. Someone obviously told the NYT reporter that it was necessary to have a “down payment” to convince world financial markets that “Washington is serious.” The NYT did not get this tidbit from the financial markets themselves. We want names; who said this? How often has this person (persons) been completely wrong in their assessment of the economy over the last 5 years?
In the same vein, can we leave the philosophical discussions out of the budget reporting, as when the NYT tells us:
“arguments over the fallback [the default budget provisions if a second round of negotiations scheduled for 2013 fails to reach an agreement] reflect a philosophical divide.”
Where does philosophy fit into this picture? We are talking budget negotiating strategies by politicians. Are we next going to hear that this involves competing recipes for preparing duck?
The piece also makes two major substantive errors. It reports on a plan to phase out the lower tax brackets for high income people, the article quotes “one aide familiar with the idea” as saying:
“It would not impact the top marginal rate, and no one would have an effective rate over 35 percent.”
Actually, some people would face a marginal tax rate above 35 percent as the phase out of the lower tax rates would push the effective rate in the zone of the phase out above 35 percent. Of course, very wealthy people whose income pushed them above the phase out zone would only see a marginal tax rate of 35 percent.
Finally, the piece begins by saying:
“Congressional negotiators, trying to avert a fiscal crisis in January…”
Congressional negotiators are not worried about a fiscal crisis in January. They are worried about an economic downturn that would result if a deal is not reached to prevent scheduled tax increases and spending cuts from taking effect. There is no fiscal crisis in this picture.
If they are, the paper should charge more for its subscriptions. Come on folks, a sentence that tells readers:
“once the target numbers are settled, negotiators would have to come up with a down payment on deficit reduction to show the world’s financial markets that Washington is serious.”
has no place in a serious newspaper. Someone obviously told the NYT reporter that it was necessary to have a “down payment” to convince world financial markets that “Washington is serious.” The NYT did not get this tidbit from the financial markets themselves. We want names; who said this? How often has this person (persons) been completely wrong in their assessment of the economy over the last 5 years?
In the same vein, can we leave the philosophical discussions out of the budget reporting, as when the NYT tells us:
“arguments over the fallback [the default budget provisions if a second round of negotiations scheduled for 2013 fails to reach an agreement] reflect a philosophical divide.”
Where does philosophy fit into this picture? We are talking budget negotiating strategies by politicians. Are we next going to hear that this involves competing recipes for preparing duck?
The piece also makes two major substantive errors. It reports on a plan to phase out the lower tax brackets for high income people, the article quotes “one aide familiar with the idea” as saying:
“It would not impact the top marginal rate, and no one would have an effective rate over 35 percent.”
Actually, some people would face a marginal tax rate above 35 percent as the phase out of the lower tax rates would push the effective rate in the zone of the phase out above 35 percent. Of course, very wealthy people whose income pushed them above the phase out zone would only see a marginal tax rate of 35 percent.
Finally, the piece begins by saying:
“Congressional negotiators, trying to avert a fiscal crisis in January…”
Congressional negotiators are not worried about a fiscal crisis in January. They are worried about an economic downturn that would result if a deal is not reached to prevent scheduled tax increases and spending cuts from taking effect. There is no fiscal crisis in this picture.
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We know that because he writes that in a budget deal it is really important that:
“everyone has to take their castor oil — the rich more, the middle class some — make them feel that it will enable us all to get stronger.”
People who know about the recession would likely feel the middle class has taken plenty of castor oil. Many have been without work or involuntarily working part time over the last five years. They have also seen much of their wealth disappear with the collapse of the housing bubble.
Friedman also seems to have a bizarre belief that the country will be better off if more people give up good jobs and use their life savings to start businesses that will fail. Friedman has apparently misunderstood research on start-ups, which shows them to be large net job creators. He thinks that more start-ups will therefore mean more jobs.
This of course does not follow, since the marginal start-up that we can induce through more start-up friendly policy is virtually certain to do worse than the average start-up. If we divert resources from existing businesses to have 50 percent more start-ups, there is no reason to believe that this would increase job growth or improve the economy’s performance, since the overwhelming majority of these start-ups will be out of business in less than a decade.
We know that because he writes that in a budget deal it is really important that:
“everyone has to take their castor oil — the rich more, the middle class some — make them feel that it will enable us all to get stronger.”
People who know about the recession would likely feel the middle class has taken plenty of castor oil. Many have been without work or involuntarily working part time over the last five years. They have also seen much of their wealth disappear with the collapse of the housing bubble.
Friedman also seems to have a bizarre belief that the country will be better off if more people give up good jobs and use their life savings to start businesses that will fail. Friedman has apparently misunderstood research on start-ups, which shows them to be large net job creators. He thinks that more start-ups will therefore mean more jobs.
This of course does not follow, since the marginal start-up that we can induce through more start-up friendly policy is virtually certain to do worse than the average start-up. If we divert resources from existing businesses to have 50 percent more start-ups, there is no reason to believe that this would increase job growth or improve the economy’s performance, since the overwhelming majority of these start-ups will be out of business in less than a decade.
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A Morning Edition segment with a CEO working with the Peter Peterson funded group, the Campaign to Fix the Debt, implied that the economy would go into a recession if a deal is not reached by January 1. There is no economic forecast that shows the economy going into a recession if a deal is not reached by January 1.
The forecasts showing the economy going into a recession assume that there is never a deal reached so people are paying higher taxes all year, emergency unemployment benefits are not extended at all, and a lower rate of spending is in effect throughout the year. None of this is implied by the failure to reach a deal by January 1, 2013. Virtually all political analysts agree that if a deal is not reached by the beginning of the year then it will be reached shortly afterwards.
This means that NPR is frightening its listeners with a scenario of its own invention. It would also be helpful if NPR used more neutral language instead of the “fiscal cliff” terminology used by those trying to create a sense of crisis around the budget standoff.
A Morning Edition segment with a CEO working with the Peter Peterson funded group, the Campaign to Fix the Debt, implied that the economy would go into a recession if a deal is not reached by January 1. There is no economic forecast that shows the economy going into a recession if a deal is not reached by January 1.
The forecasts showing the economy going into a recession assume that there is never a deal reached so people are paying higher taxes all year, emergency unemployment benefits are not extended at all, and a lower rate of spending is in effect throughout the year. None of this is implied by the failure to reach a deal by January 1, 2013. Virtually all political analysts agree that if a deal is not reached by the beginning of the year then it will be reached shortly afterwards.
This means that NPR is frightening its listeners with a scenario of its own invention. It would also be helpful if NPR used more neutral language instead of the “fiscal cliff” terminology used by those trying to create a sense of crisis around the budget standoff.
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A Washington Post blogpost, whose headline told readers that manufacturing jobs are not coming back, gave an incredibly misleading rationale for this assertion. It told readers:
“Manufacturing contributed 20 percent of the growth in global economic output in the decade ending in 2010, the McKinsey researchers estimate, and 37 percent of global productivity growth from 1995 to 2005. Yet the sector actually subtracted 24 percent from employment in advanced nations.”
Note that the first two figures refer to global growth, as in whole world. The third number refers to growth in advanced nations. This matters in a huge way. The trade deficit in manufacturing goods that advanced countries ran with the developing world expanded hugely in this decade.
This was conscious policy in many countries as they removed barriers to trade in manufacturing goods while maintaining or increasing barriers to trade in many services, like physicians and lawyers services. Apart from the political implications of this policy (even greater inequality, as a small group of sheltered professionals gain at the expense of the rest of the workforce), there is also the economic problem that trade deficits cannot expand indefinitely.
At present, China and other developing countries are effectively willing to subsidize U.S. consumption of their manufacturing exports by buying up U.S. government bonds that pay negative real interest rates. It cannot be too long before these governments figure out how to create demand by spending money domestically, rather than paying U.S. consumers to buy their stuff. When this happens, manufacturing, which continues to dominate world trade, is likely to flow back to the advanced countries.
In contrast to the decade from 2000 to 2010, when they were losing shares of world output, advanced countries will then likely be gaining shares. This will almost certainly mean substantial growth in manufacturing employment unless productivity growth, and therefore GDP growth, turns out to be much higher than is generally projected.
A Washington Post blogpost, whose headline told readers that manufacturing jobs are not coming back, gave an incredibly misleading rationale for this assertion. It told readers:
“Manufacturing contributed 20 percent of the growth in global economic output in the decade ending in 2010, the McKinsey researchers estimate, and 37 percent of global productivity growth from 1995 to 2005. Yet the sector actually subtracted 24 percent from employment in advanced nations.”
Note that the first two figures refer to global growth, as in whole world. The third number refers to growth in advanced nations. This matters in a huge way. The trade deficit in manufacturing goods that advanced countries ran with the developing world expanded hugely in this decade.
This was conscious policy in many countries as they removed barriers to trade in manufacturing goods while maintaining or increasing barriers to trade in many services, like physicians and lawyers services. Apart from the political implications of this policy (even greater inequality, as a small group of sheltered professionals gain at the expense of the rest of the workforce), there is also the economic problem that trade deficits cannot expand indefinitely.
At present, China and other developing countries are effectively willing to subsidize U.S. consumption of their manufacturing exports by buying up U.S. government bonds that pay negative real interest rates. It cannot be too long before these governments figure out how to create demand by spending money domestically, rather than paying U.S. consumers to buy their stuff. When this happens, manufacturing, which continues to dominate world trade, is likely to flow back to the advanced countries.
In contrast to the decade from 2000 to 2010, when they were losing shares of world output, advanced countries will then likely be gaining shares. This will almost certainly mean substantial growth in manufacturing employment unless productivity growth, and therefore GDP growth, turns out to be much higher than is generally projected.
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The affirmative action policy that major media outlets have for deficit hawks is widely recognized. Arguments that would never appear in a serious media outlet based on their merits, fill the pages of newspapers and fill the airspace of leading television and radio news shows. In keeping with this spirit, USA Today gave us a column from Evan Feinberg, a policy analyst at the Charles Koch Institute.
The main thesis of the column is that the United States government is like a subprime borrower who is about see interest rates rise and throw the country into bankruptcy. Here’s the key paragraph:
“Say by 2015 rates rise to 3.5 percent. Our projected debt of $20 trillion will cost Americans $700 billion in annual interest payments. At 5 percent — still a low number in historical terms — we’ll pay $1 trillion. And if rates return to 1990 levels, we’ll have to pay more than $1.5 trillion in interest before we can even begin paying down our actual debt.”
Wow, are we all really scared?
There a couple of big problems with Feinberg’s story. First, much of our debt is long-term debt. We issue bonds that have durations of 10 years, 15 years, and even 30 years. The interest rate we pay on these bonds is not affected by increases in market interest rates in future years. In fact, if we want to make the deficit hawk cultists happy, when interest rates rise we can even buy back these bonds back at sharp discounts, thereby reducing our debt burden.
Second, much of the debt in his story is held by the Social Security, Medicare, and federal employee retirement trust funds. Higher interest payments on the bonds held by these funds is a burden to the general budget, but improves the finances of these trust funds.
While Feinberg presumably thinks he has discovered something new, the Congressional Budget Office actually anticipated that interest rates would rise in future years when the economy recovers. They incorporated this fact into their projections (Table 1-3). CBO has our net interest payments rising to $282 billion by 2015, approximately 1.5 percent of GDP. This is a bit less than half as much as the interest burden that the country faced in the early 90s.
It is also worth noting that much of the publicly held federal debt is currently held by the Federal Reserve Board. The interest on this debt is rebated to the Treasury. Last year, the Federal Reserve Board rebated almost $80 billion to the Treasury. If the Fed continues to hold this debt, it can continue to rebate $80 billion a year to the Treasury. (It can rely on higher reserve requirements to limit the amount of money in circulation and prevent inflation, if that is a problem.)
This would mean, based on the CBO numbers, we would be looking at a net interest burden in 2015 of roughly $200 billion or 1.2 percent of GDP. That is only a bit more than one-third of the early 90s burden.
Yes, this is just like the situation of subprime borrowers. (Nevermind that our debt is in dollars, and we print dollars.)
You can see why USA Today and the rest of the media need to have an affirmative action policy for deficit hawks.
The affirmative action policy that major media outlets have for deficit hawks is widely recognized. Arguments that would never appear in a serious media outlet based on their merits, fill the pages of newspapers and fill the airspace of leading television and radio news shows. In keeping with this spirit, USA Today gave us a column from Evan Feinberg, a policy analyst at the Charles Koch Institute.
The main thesis of the column is that the United States government is like a subprime borrower who is about see interest rates rise and throw the country into bankruptcy. Here’s the key paragraph:
“Say by 2015 rates rise to 3.5 percent. Our projected debt of $20 trillion will cost Americans $700 billion in annual interest payments. At 5 percent — still a low number in historical terms — we’ll pay $1 trillion. And if rates return to 1990 levels, we’ll have to pay more than $1.5 trillion in interest before we can even begin paying down our actual debt.”
Wow, are we all really scared?
There a couple of big problems with Feinberg’s story. First, much of our debt is long-term debt. We issue bonds that have durations of 10 years, 15 years, and even 30 years. The interest rate we pay on these bonds is not affected by increases in market interest rates in future years. In fact, if we want to make the deficit hawk cultists happy, when interest rates rise we can even buy back these bonds back at sharp discounts, thereby reducing our debt burden.
Second, much of the debt in his story is held by the Social Security, Medicare, and federal employee retirement trust funds. Higher interest payments on the bonds held by these funds is a burden to the general budget, but improves the finances of these trust funds.
While Feinberg presumably thinks he has discovered something new, the Congressional Budget Office actually anticipated that interest rates would rise in future years when the economy recovers. They incorporated this fact into their projections (Table 1-3). CBO has our net interest payments rising to $282 billion by 2015, approximately 1.5 percent of GDP. This is a bit less than half as much as the interest burden that the country faced in the early 90s.
It is also worth noting that much of the publicly held federal debt is currently held by the Federal Reserve Board. The interest on this debt is rebated to the Treasury. Last year, the Federal Reserve Board rebated almost $80 billion to the Treasury. If the Fed continues to hold this debt, it can continue to rebate $80 billion a year to the Treasury. (It can rely on higher reserve requirements to limit the amount of money in circulation and prevent inflation, if that is a problem.)
This would mean, based on the CBO numbers, we would be looking at a net interest burden in 2015 of roughly $200 billion or 1.2 percent of GDP. That is only a bit more than one-third of the early 90s burden.
Yes, this is just like the situation of subprime borrowers. (Nevermind that our debt is in dollars, and we print dollars.)
You can see why USA Today and the rest of the media need to have an affirmative action policy for deficit hawks.
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The Washington Post gave a careful account of Federal Reserve Board Chairman Ben Bernanke’s testimony to Congress:
“Federal Reserve Chairman Ben Bernanke delivered a stark warning to lawmakers in a high-profile speech Tuesday, saying that the U.S. economy is at risk if they bungle negotiations over the looming austerity crisis.
“Bernanke’s remarks are notable less for their substance than for their tone and timing. In his most prominent public speech in almost three months, Bernanke made clear that he sees grave risks should the bargaining over the ‘fiscal cliff’ — a phrase he coined — lead to either steep, immediate fiscal austerity or prolonged, confidence-rattling brinksmanship. And he suggested that 2013 could be a good year for the U.S. economy if lawmakers reach a deal quickly and amicably. …
“And the nation’s future prospects may be shaped in part by whether policymakers act in ways that instill confidence in the stability of U.S. policy.
“The economy is already bearing the weight of that anxiety, Bernanke said, and ‘such uncertainties will only be increased by discord and delay. In contrast, cooperation and creativity to deliver fiscal clarity . . . could help make the new year a very good one for the American economy.'”
It would probably be worth reminding readers that as a Federal Reserve Board governor and later President Bush’s chief economic adviser, Mr. Bernanke completely missed the rise of the $8 trillion housing bubble, the largest asset bubble in the history of the world. When its collapse first started to create stress in financial markets, he publicly stated that he expected the problems to be restricted to the subprime market. When Bears Stearns collapsed in March of 2008 he testified to Congress that he didn’t see another Bear Stearns out there.
It might be useful to give readers this background on Bernanke’s track record when reporting his current statements on the economy.
The Washington Post gave a careful account of Federal Reserve Board Chairman Ben Bernanke’s testimony to Congress:
“Federal Reserve Chairman Ben Bernanke delivered a stark warning to lawmakers in a high-profile speech Tuesday, saying that the U.S. economy is at risk if they bungle negotiations over the looming austerity crisis.
“Bernanke’s remarks are notable less for their substance than for their tone and timing. In his most prominent public speech in almost three months, Bernanke made clear that he sees grave risks should the bargaining over the ‘fiscal cliff’ — a phrase he coined — lead to either steep, immediate fiscal austerity or prolonged, confidence-rattling brinksmanship. And he suggested that 2013 could be a good year for the U.S. economy if lawmakers reach a deal quickly and amicably. …
“And the nation’s future prospects may be shaped in part by whether policymakers act in ways that instill confidence in the stability of U.S. policy.
“The economy is already bearing the weight of that anxiety, Bernanke said, and ‘such uncertainties will only be increased by discord and delay. In contrast, cooperation and creativity to deliver fiscal clarity . . . could help make the new year a very good one for the American economy.'”
It would probably be worth reminding readers that as a Federal Reserve Board governor and later President Bush’s chief economic adviser, Mr. Bernanke completely missed the rise of the $8 trillion housing bubble, the largest asset bubble in the history of the world. When its collapse first started to create stress in financial markets, he publicly stated that he expected the problems to be restricted to the subprime market. When Bears Stearns collapsed in March of 2008 he testified to Congress that he didn’t see another Bear Stearns out there.
It might be useful to give readers this background on Bernanke’s track record when reporting his current statements on the economy.
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Unfortunately it is in an otherwise useful column by Thomas Edsall on evolving political attitudes. The second to the last sentence tells reader that:
“Nonetheless, the overarching division remains, and the battle lines are drawn over how to distribute the costs of the looming fiscal crisis.”
But those wondering about the nature of the costly fiscal crisis to which Edsall is referring would follow the link to a Wall Street Journal piece on the fiscal showdown over the end of the Bush tax cuts and the sequester of spending that are scheduled to occurr at the end of the year. This crisis is one of excessive deficit reduction, it is resolved by smaller tax increases and smaller cuts in spending.
In other words, the crisis is that we are taking too much money away from people, which will hurt the economy. The crisis will be resolved by taking less money away from people. It is the opposite of a “costly fiscal crisis.” Instead, we will be faced with a costly economic crisis if the tax increases and spending cuts are allowed to take effect.
Unfortunately it is in an otherwise useful column by Thomas Edsall on evolving political attitudes. The second to the last sentence tells reader that:
“Nonetheless, the overarching division remains, and the battle lines are drawn over how to distribute the costs of the looming fiscal crisis.”
But those wondering about the nature of the costly fiscal crisis to which Edsall is referring would follow the link to a Wall Street Journal piece on the fiscal showdown over the end of the Bush tax cuts and the sequester of spending that are scheduled to occurr at the end of the year. This crisis is one of excessive deficit reduction, it is resolved by smaller tax increases and smaller cuts in spending.
In other words, the crisis is that we are taking too much money away from people, which will hurt the economy. The crisis will be resolved by taking less money away from people. It is the opposite of a “costly fiscal crisis.” Instead, we will be faced with a costly economic crisis if the tax increases and spending cuts are allowed to take effect.
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That is what readers of his column on the budget standoff undoubtedly concluded when they read his line:
“It’s a pity, because the outlines of the needed deal are clear.”
He then lists a number of items which would not obviously be in most people’s outlines, such as reduction in the top tax rate from 39.6 percent to 30.0 percent, and “sizable cuts in Social Security and Medicare.” The latter might be viewed as especially surprising since an overwhelming majority of people across the political spectrum are opposed to cuts in Social Security and Medicare.
As a policy matter, with the vast majority of retirees just scraping by now, the idea of imposing further hardship would not seem to make a lot of sense. According to the Pew Research Center, the median near retiree household will not even have enough wealth to pay off their mortgage (their median wealth is just $162,000 compared to a median house price of more than $180,000).
This means that if a typical household used all of their wealth, including all their retirement accounts and selling their car, they would still have a small mortgage left over and would be entirely dependent on a Social Security check that averages just over $1,200 a month for their income. While highly touted in media outlets like the Washington Post, the number of affluent elderly (incomes over $100,000) are few and far between. Cutting their benefits would have little impact on the finances of Social Security and Medicare or the federal budget.
Given these facts, how could it be so clear to Samuelson that the outlines of the needed deal include sizable cuts in Social Security and Medicare? I gave my answer.
That is what readers of his column on the budget standoff undoubtedly concluded when they read his line:
“It’s a pity, because the outlines of the needed deal are clear.”
He then lists a number of items which would not obviously be in most people’s outlines, such as reduction in the top tax rate from 39.6 percent to 30.0 percent, and “sizable cuts in Social Security and Medicare.” The latter might be viewed as especially surprising since an overwhelming majority of people across the political spectrum are opposed to cuts in Social Security and Medicare.
As a policy matter, with the vast majority of retirees just scraping by now, the idea of imposing further hardship would not seem to make a lot of sense. According to the Pew Research Center, the median near retiree household will not even have enough wealth to pay off their mortgage (their median wealth is just $162,000 compared to a median house price of more than $180,000).
This means that if a typical household used all of their wealth, including all their retirement accounts and selling their car, they would still have a small mortgage left over and would be entirely dependent on a Social Security check that averages just over $1,200 a month for their income. While highly touted in media outlets like the Washington Post, the number of affluent elderly (incomes over $100,000) are few and far between. Cutting their benefits would have little impact on the finances of Social Security and Medicare or the federal budget.
Given these facts, how could it be so clear to Samuelson that the outlines of the needed deal include sizable cuts in Social Security and Medicare? I gave my answer.
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After warning readers of the dire consequences of waiting until after January 1 to reach a deal on taxes and spending, the Post told readers that the markets don’t seem to share its concerns. This was a good honest assessment of what to date seems to be largely a non-response to the dire warnings emanating from Washington policy circles about THE FISCAL CLIFF!!!!!!!!
After warning readers of the dire consequences of waiting until after January 1 to reach a deal on taxes and spending, the Post told readers that the markets don’t seem to share its concerns. This was a good honest assessment of what to date seems to be largely a non-response to the dire warnings emanating from Washington policy circles about THE FISCAL CLIFF!!!!!!!!
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