Consumption amounts to 70 percent of the economy, so getting the basic facts right about consumption and savings is pretty central to understanding the economy. That’s why it is pretty incredible that the Post told readers today:
“Households began squirreling away cash in the midst of the recession. The savings rate, which was at 1 percent in 2005, generally fluctuated between 5 percent and 6 percent during the recent recession. This year it has hovered around 4 percent, still above historical norms.”
No, this is not true. The saving rate actually averaged above 8.0 percent through most of the post-war period. It began to fall in the late 80s when the wealth created by the stock market run-up led to more consumption. It fell as low as 2.0 percent in 2000 at the peak of the stock bubble. It then fell even lower at the peaks of the housing bubble in the last decade. While the saving rate has risen from its bubble driven lows, it is still well below historical norms. (Adjusted savings uses an adjustment to disposable income based on the statistical discrepancy.)
Source: Bureau of Economic Analysis.
The piece also badly misleads readers when it reports:
“the average household approaching retirement had only $120,000 in 401(k) or individual retirement account holdings in 2010, roughly the same as in 2007. That balance translates to about $575 in monthly income.”
This figure refers to the average holding among the group that has a 401(k) account. In fact, close to half of those near retirement have no account at all. Furthermore the holdings of the typical household even among with retirement accounts is far below the average.
An analysis by the Pew Research Center found that the typical household approaching retirement had just 164,000 in total wealth. This counts equity in their home, which is by the largest source of wealth for most middle income families. Since the price of the median home is slightly over $180,000, the Pew finding means that the median household approaching retirement has roughly enough money to pay off the mortgage on their house and then would be completely dependent on their Social Security benefits for income in retirement. The Post’s discussion would have grossly misled readers into thinking that the typical household approaching retirement could anticipate substantial non-Social Security income.
Consumption amounts to 70 percent of the economy, so getting the basic facts right about consumption and savings is pretty central to understanding the economy. That’s why it is pretty incredible that the Post told readers today:
“Households began squirreling away cash in the midst of the recession. The savings rate, which was at 1 percent in 2005, generally fluctuated between 5 percent and 6 percent during the recent recession. This year it has hovered around 4 percent, still above historical norms.”
No, this is not true. The saving rate actually averaged above 8.0 percent through most of the post-war period. It began to fall in the late 80s when the wealth created by the stock market run-up led to more consumption. It fell as low as 2.0 percent in 2000 at the peak of the stock bubble. It then fell even lower at the peaks of the housing bubble in the last decade. While the saving rate has risen from its bubble driven lows, it is still well below historical norms. (Adjusted savings uses an adjustment to disposable income based on the statistical discrepancy.)
Source: Bureau of Economic Analysis.
The piece also badly misleads readers when it reports:
“the average household approaching retirement had only $120,000 in 401(k) or individual retirement account holdings in 2010, roughly the same as in 2007. That balance translates to about $575 in monthly income.”
This figure refers to the average holding among the group that has a 401(k) account. In fact, close to half of those near retirement have no account at all. Furthermore the holdings of the typical household even among with retirement accounts is far below the average.
An analysis by the Pew Research Center found that the typical household approaching retirement had just 164,000 in total wealth. This counts equity in their home, which is by the largest source of wealth for most middle income families. Since the price of the median home is slightly over $180,000, the Pew finding means that the median household approaching retirement has roughly enough money to pay off the mortgage on their house and then would be completely dependent on their Social Security benefits for income in retirement. The Post’s discussion would have grossly misled readers into thinking that the typical household approaching retirement could anticipate substantial non-Social Security income.
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Why does the media keep telling us that the Bowles-Simpson commission issued a report when it clearly did not. If we go to the commission’s website and read its bylaws we can quickly find:
“The Commission shall vote on the approval of a final report containing a set of recommendations to achieve the objectives set forth in the Charter no later than December 1, 2010. The issuance of a final report of the Commission shall require the approval of not less than 14 of the 18 members of the Commission.”
In fact, there was no vote on anything by December 1, 2010 and there was never a report that received the approval of 14 of the 18 commission members. Therefore, there was no report of the commission. That’s pretty simple, isn’t it?
Then why does the NYT refer to:
“the proposal by President Obama’s fiscal commission led by Erskine B. Bowles, the Clinton White House chief of staff, and former Senator Alan K. Simpson of Wyoming, a Republican.”
The plan being referred to in this piece was a proposal of the co-chairs, it was not a report of the fiscal commission.
Come on folks, we know that a lot of powerful people in Washington like this plan. (According to reports, they have a full hand-written copy kept in a gold laced tabernacle in the penthouse at the Washington Post.) It is widely praised in Wall Street circles as well.
But the plan’s advocates should have to push their plan the old-fashioned way — work for candidates who support the plan, give money to their campaigns, buy billions of dollars of deceptive TV ads — they should not use the news section of the NYT to give the Bowles-Simpson plan more credibility than it warrants.
Why does the media keep telling us that the Bowles-Simpson commission issued a report when it clearly did not. If we go to the commission’s website and read its bylaws we can quickly find:
“The Commission shall vote on the approval of a final report containing a set of recommendations to achieve the objectives set forth in the Charter no later than December 1, 2010. The issuance of a final report of the Commission shall require the approval of not less than 14 of the 18 members of the Commission.”
In fact, there was no vote on anything by December 1, 2010 and there was never a report that received the approval of 14 of the 18 commission members. Therefore, there was no report of the commission. That’s pretty simple, isn’t it?
Then why does the NYT refer to:
“the proposal by President Obama’s fiscal commission led by Erskine B. Bowles, the Clinton White House chief of staff, and former Senator Alan K. Simpson of Wyoming, a Republican.”
The plan being referred to in this piece was a proposal of the co-chairs, it was not a report of the fiscal commission.
Come on folks, we know that a lot of powerful people in Washington like this plan. (According to reports, they have a full hand-written copy kept in a gold laced tabernacle in the penthouse at the Washington Post.) It is widely praised in Wall Street circles as well.
But the plan’s advocates should have to push their plan the old-fashioned way — work for candidates who support the plan, give money to their campaigns, buy billions of dollars of deceptive TV ads — they should not use the news section of the NYT to give the Bowles-Simpson plan more credibility than it warrants.
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It apparently is that time of year when columnists try out as speechwriters for the candidates. After Robert Samuelson tried his hand by writing speeches for both candidates in his Washington Post column yesterday, David Brooks took a shot in drafting a debate intro for Governor Romney today. Brooks’ speech is not especially truthful, but I suppose that is par for a presidential candidate.
He tells readers:
“The next president is going to face some wicked problems. The first is the “fiscal cliff.” The next president is going to have to forge a grand compromise on the budget. President Obama has tried and failed to do this over the past four years. There’s no reason to think he’d do any better over the next four.”
Actually there is no reason that the next president has to “forge a grand compromise on the budget.” Budget deficits were in fact quite modest until the collapse of the housing bubble tanked the economy. If the economy were back near full employment, deficits would again be quite modest. The ratio of interest payments to GDP is near its post-war low.
Source: Congressional Budget Office.
As Brooks’ speech continues, he has Romney say:
“the nations that successfully trim debt have raised $1 in new revenue for every $3 in spending cuts.”
So Brooks wants Governor Romney to assert with no basis in reality that the next president must have big budget cuts. This almost certainly means cuts to Social Security and Medicare (there ain’t much else in the non-defense budget), but Brooks would not have Romney be this honest in his opening debate statement.
He then has Romney go into a diatribe about regulatory horror stories under President Obama:
“The Obama administration, which is either hostile to or aloof from business, has made a thousand tax, regulatory and spending decisions that are biased away from growth and biased toward other priorities. American competitiveness has fallen in each of the past four years, according to the World Economic Forum. Medical device makers, for example, are being chased overseas. The economy in 2012 is worse than the economy in 2011. That’s inexcusable.”
Hmm, were the bailouts of Citigroup and Bank of America against business? How about the administration’s green light to fracking? How about a health care plan that was based on a 90s plan from the Heritage Foundation and the health care plan that Governor Romney put in place in Massachusetts?
We now know that most U.S. corporations are managed by big cry babies who are unhappy unless they are constantly told that they are wonderful people, but as a practical matter praise or criticism of the “job creators” doesn’t seem to have much economic consequence. Investment in equipment and software under our Kenyan socialist president is almost as high, measured as a share of GDP, as it was in the rein of the very business friendly George W. Bush. This is especially impressive since large segments of the economy are still suffering from substantial amounts of excess capacity.
Furthermore, we have the Brooks-Romney line that:
“Medical device makers, for example, are being chased overseas.”
This makes no sense. The comment is a reference to a small tax on medical devices that is being used to help finance the Affordable Care Act. The problem with the story is that the tax applies to the devices when they are sold in the United States. This means that manufacturers will not be able to evade the tax even if they move their operations overseas. Was Romney really this clueless when he ran Bain Capital?
Okay, the statement goes on, but you get the flavor. So, should Governor Romney hire David Brooks?
It apparently is that time of year when columnists try out as speechwriters for the candidates. After Robert Samuelson tried his hand by writing speeches for both candidates in his Washington Post column yesterday, David Brooks took a shot in drafting a debate intro for Governor Romney today. Brooks’ speech is not especially truthful, but I suppose that is par for a presidential candidate.
He tells readers:
“The next president is going to face some wicked problems. The first is the “fiscal cliff.” The next president is going to have to forge a grand compromise on the budget. President Obama has tried and failed to do this over the past four years. There’s no reason to think he’d do any better over the next four.”
Actually there is no reason that the next president has to “forge a grand compromise on the budget.” Budget deficits were in fact quite modest until the collapse of the housing bubble tanked the economy. If the economy were back near full employment, deficits would again be quite modest. The ratio of interest payments to GDP is near its post-war low.
Source: Congressional Budget Office.
As Brooks’ speech continues, he has Romney say:
“the nations that successfully trim debt have raised $1 in new revenue for every $3 in spending cuts.”
So Brooks wants Governor Romney to assert with no basis in reality that the next president must have big budget cuts. This almost certainly means cuts to Social Security and Medicare (there ain’t much else in the non-defense budget), but Brooks would not have Romney be this honest in his opening debate statement.
He then has Romney go into a diatribe about regulatory horror stories under President Obama:
“The Obama administration, which is either hostile to or aloof from business, has made a thousand tax, regulatory and spending decisions that are biased away from growth and biased toward other priorities. American competitiveness has fallen in each of the past four years, according to the World Economic Forum. Medical device makers, for example, are being chased overseas. The economy in 2012 is worse than the economy in 2011. That’s inexcusable.”
Hmm, were the bailouts of Citigroup and Bank of America against business? How about the administration’s green light to fracking? How about a health care plan that was based on a 90s plan from the Heritage Foundation and the health care plan that Governor Romney put in place in Massachusetts?
We now know that most U.S. corporations are managed by big cry babies who are unhappy unless they are constantly told that they are wonderful people, but as a practical matter praise or criticism of the “job creators” doesn’t seem to have much economic consequence. Investment in equipment and software under our Kenyan socialist president is almost as high, measured as a share of GDP, as it was in the rein of the very business friendly George W. Bush. This is especially impressive since large segments of the economy are still suffering from substantial amounts of excess capacity.
Furthermore, we have the Brooks-Romney line that:
“Medical device makers, for example, are being chased overseas.”
This makes no sense. The comment is a reference to a small tax on medical devices that is being used to help finance the Affordable Care Act. The problem with the story is that the tax applies to the devices when they are sold in the United States. This means that manufacturers will not be able to evade the tax even if they move their operations overseas. Was Romney really this clueless when he ran Bain Capital?
Okay, the statement goes on, but you get the flavor. So, should Governor Romney hire David Brooks?
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I have always been a big fan of good headlines and let me begin by expressing my admiration for the folks at NPR for coming up with the title “Fiscal Cliff Notes” for their series on the budget standoff. But sometimes you can’t use a title even if it’s good. (My staff has restrained me from using many of my best titles and headlines.) “Fiscal Cliff Notes” belongs in that do not use box.
First and foremost the problem is that it is not accurate. It also helps push the Republican agenda on budget policy.
The reason that it is not accurate is that there is no cliff. Contrary to the image conveyed by the metaphor, pretty much nothing happens on January 1, 2013 if there is no budget deal in place. We will all be on a higher tax withholding schedule and in principle the government should be spending at a slower pace, but these effects will be virtually invisible on January 1. In fact, they will just barely be visible even if we go the whole month of January without a deal.
The tales of sharply slower growth and even a recession are based on Congress and the president going a whole year without a deal. At that point the economy will certainly feel the effects of higher with-holdings and slower spending, but that is not what happens from failing to reach a deal by January 1. (Here is a somewhat fuller discussion.)
This matters a great deal in the current context because the Republicans would very much like to force a deal before the end of the year when the immediate issue is raising taxes or not for various segments of the population. After January 1, the Bush tax cuts will have expired. At that point, the question will be who gets a tax cut. This would be a far more advantageous position for President Obama to negotiate from, assuming that he does win the election.
For this reason, wrongly implying an urgency to getting a deal before January 1 frames the debate on terms that are very advantageous to the Republicans in Congress. NPR should go back into the files and dig up a better headline for this series.
I have always been a big fan of good headlines and let me begin by expressing my admiration for the folks at NPR for coming up with the title “Fiscal Cliff Notes” for their series on the budget standoff. But sometimes you can’t use a title even if it’s good. (My staff has restrained me from using many of my best titles and headlines.) “Fiscal Cliff Notes” belongs in that do not use box.
First and foremost the problem is that it is not accurate. It also helps push the Republican agenda on budget policy.
The reason that it is not accurate is that there is no cliff. Contrary to the image conveyed by the metaphor, pretty much nothing happens on January 1, 2013 if there is no budget deal in place. We will all be on a higher tax withholding schedule and in principle the government should be spending at a slower pace, but these effects will be virtually invisible on January 1. In fact, they will just barely be visible even if we go the whole month of January without a deal.
The tales of sharply slower growth and even a recession are based on Congress and the president going a whole year without a deal. At that point the economy will certainly feel the effects of higher with-holdings and slower spending, but that is not what happens from failing to reach a deal by January 1. (Here is a somewhat fuller discussion.)
This matters a great deal in the current context because the Republicans would very much like to force a deal before the end of the year when the immediate issue is raising taxes or not for various segments of the population. After January 1, the Bush tax cuts will have expired. At that point, the question will be who gets a tax cut. This would be a far more advantageous position for President Obama to negotiate from, assuming that he does win the election.
For this reason, wrongly implying an urgency to getting a deal before January 1 frames the debate on terms that are very advantageous to the Republicans in Congress. NPR should go back into the files and dig up a better headline for this series.
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A generally informative NYT piece on the expiration of the payroll tax cut at the end of the year told readers:
“The original point of the payroll tax holiday was to stimulate consumer spending and aid middle-income households. But now Congress needs the money as it struggles with vast deficits and believes the economy can withstand the expiration.”
It is not clear in what way Congress “needs” the revenue nor why it faces any objective need to struggle with “vast” deficits. Nor is there any obvious way in which the economy is better situated to withstand the lost demand that would result from the expiration of the tax cut than it was last year.
Of course deficits are large precisely because the economy is weak. If the economy were near its full employment level of output, then deficits would be modest with the debt to GDP ratio stable or falling. The decision to focus on deficits is a political one that has no obvious economic rationale. While most of this information actually appears in this article, this paragraph presents an interpretation of events that is almost directly at odds with the reality.
A generally informative NYT piece on the expiration of the payroll tax cut at the end of the year told readers:
“The original point of the payroll tax holiday was to stimulate consumer spending and aid middle-income households. But now Congress needs the money as it struggles with vast deficits and believes the economy can withstand the expiration.”
It is not clear in what way Congress “needs” the revenue nor why it faces any objective need to struggle with “vast” deficits. Nor is there any obvious way in which the economy is better situated to withstand the lost demand that would result from the expiration of the tax cut than it was last year.
Of course deficits are large precisely because the economy is weak. If the economy were near its full employment level of output, then deficits would be modest with the debt to GDP ratio stable or falling. The decision to focus on deficits is a political one that has no obvious economic rationale. While most of this information actually appears in this article, this paragraph presents an interpretation of events that is almost directly at odds with the reality.
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Robert Samuelson used his column today to write speeches for President Obama and Governor Romney which are supposed to be giving us what both of them should be telling the public. (Aren’t columnists cute when they do this?) In the case of President Obama the focus is on the need to increase taxes on middle income people and cut benefits:
“‘Fellow Americans. For years, your leaders — including me — have misled you. Your government has made more promises than it can keep, even if the economy returns to full employment. Your taxes are going up, and your public services are going down. …
“As you know, the great driver here is the retirement of baby boomers. Between 2011 and 2025, the number of retirees on Social Security will grow by nearly 50 percent to 66 million people; Medicare experiences a similar rise. The resulting spending surge perpetuates huge budget deficits. The Congressional Budget Office estimates that present policies would result in cumulative deficits of $10 trillion from 2013 to 2022. In 2022, the annual deficit is $1.4 trillion, or 5.5 percent of the economy, our gross domestic product. I have no credible plan to control Medicare and Social Security spending.”
Actually, if the unemployment rate fell back to 4.5 percent in 2022 (the pre-recession level), rather than the 5.3 percent level assumed by the Congressional Budget Office, the budget deficit would be close to a level that was consistent with a stable debt to GDP ratio, meaning that it could be sustained indefinitely. Presumably the public would not be too bothered by measures that would get the economy back to full employment (e.g. a more expansionary monetary policy from the Federal Reserve Board).
Of course, the major source for the projected rise in spending is the explosion of health care costs in the private sector. The focus of the truth telling speech promised by Samuelson should therefore be the need to fix the health care system, not more pain from the middle class. If the United States paid the same amount per person for health care as any other wealthy country we would be looking at large budget surpluses, not deficits.
While Samuelson wants to scare people with the projected rise in the number of retirees, it is worth pointing out that productivity is projected to rise by almost 40 percent between 2011 and 2025. This means that if workers actually received their share of productivity growth, then they would be enjoying substantially higher living standards in 2025, even if it were necessary to pay somewhat higher taxes to sustain Social Security and Medicare. For most workers the upward redistribution of income presents a far larger threat to their living standards than any demographic issues.
Robert Samuelson used his column today to write speeches for President Obama and Governor Romney which are supposed to be giving us what both of them should be telling the public. (Aren’t columnists cute when they do this?) In the case of President Obama the focus is on the need to increase taxes on middle income people and cut benefits:
“‘Fellow Americans. For years, your leaders — including me — have misled you. Your government has made more promises than it can keep, even if the economy returns to full employment. Your taxes are going up, and your public services are going down. …
“As you know, the great driver here is the retirement of baby boomers. Between 2011 and 2025, the number of retirees on Social Security will grow by nearly 50 percent to 66 million people; Medicare experiences a similar rise. The resulting spending surge perpetuates huge budget deficits. The Congressional Budget Office estimates that present policies would result in cumulative deficits of $10 trillion from 2013 to 2022. In 2022, the annual deficit is $1.4 trillion, or 5.5 percent of the economy, our gross domestic product. I have no credible plan to control Medicare and Social Security spending.”
Actually, if the unemployment rate fell back to 4.5 percent in 2022 (the pre-recession level), rather than the 5.3 percent level assumed by the Congressional Budget Office, the budget deficit would be close to a level that was consistent with a stable debt to GDP ratio, meaning that it could be sustained indefinitely. Presumably the public would not be too bothered by measures that would get the economy back to full employment (e.g. a more expansionary monetary policy from the Federal Reserve Board).
Of course, the major source for the projected rise in spending is the explosion of health care costs in the private sector. The focus of the truth telling speech promised by Samuelson should therefore be the need to fix the health care system, not more pain from the middle class. If the United States paid the same amount per person for health care as any other wealthy country we would be looking at large budget surpluses, not deficits.
While Samuelson wants to scare people with the projected rise in the number of retirees, it is worth pointing out that productivity is projected to rise by almost 40 percent between 2011 and 2025. This means that if workers actually received their share of productivity growth, then they would be enjoying substantially higher living standards in 2025, even if it were necessary to pay somewhat higher taxes to sustain Social Security and Medicare. For most workers the upward redistribution of income presents a far larger threat to their living standards than any demographic issues.
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Mark Zandi is anxious to give President Obama credit for the first time homebuyers tax credit, arguing that it helped stop the free fall in house prices. Actually, blame would be more appropriate. The credit was offered at a time when the bubble was still far from having fully deflated. The credit was not going to maintain house prices at a permanently inflated level unless the government was prepared to go the route of a house price support program. (This would be sort of like out farm price support programs, except it would be a lot more costly and would redistribute much more money upward.).
The main effect of the credit, as Zandi notes, was to pull people into the market earlier than would have otherwise been the case. As a result, many first-time homebuyers paid bubble inflated prices for houses. The price declines resumed as soon as the credit expired. When the deflation of the bubble had been completed many saw price declines on their homes that were two or three times the size of the credit. This loss was a totally predictable effect from offering the credit in a market where the bubble was still in the process of deflating.
The credit did not have any lasting effect on the housing market. It just transferred wealth from the government to homeowners wishing to sell and to banks and other mortgage holders who might otherwise have been forced to accept short sales. It is hard to see any positive effects from this policy.
Mark Zandi is anxious to give President Obama credit for the first time homebuyers tax credit, arguing that it helped stop the free fall in house prices. Actually, blame would be more appropriate. The credit was offered at a time when the bubble was still far from having fully deflated. The credit was not going to maintain house prices at a permanently inflated level unless the government was prepared to go the route of a house price support program. (This would be sort of like out farm price support programs, except it would be a lot more costly and would redistribute much more money upward.).
The main effect of the credit, as Zandi notes, was to pull people into the market earlier than would have otherwise been the case. As a result, many first-time homebuyers paid bubble inflated prices for houses. The price declines resumed as soon as the credit expired. When the deflation of the bubble had been completed many saw price declines on their homes that were two or three times the size of the credit. This loss was a totally predictable effect from offering the credit in a market where the bubble was still in the process of deflating.
The credit did not have any lasting effect on the housing market. It just transferred wealth from the government to homeowners wishing to sell and to banks and other mortgage holders who might otherwise have been forced to accept short sales. It is hard to see any positive effects from this policy.
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It is remarkable how people keep insisting, in spite of all the evidence to the contrary, that the problem of the downturn is a financial crisis rather than simply a collapsed housing bubble. The latter story is simple. Housing construction was driven by bubble-inflated prices. When prices plunged, construction collapsed. Not only did we no longer have inflated prices to drive construction, we also had an enormous oversupply as a result of 5 years of near record rates of construction. From 2006 to 2009 construction fell by more than 4 percentage points of GDP, leading to a loss of more than $600 billion in annual demand.
In addition, the loss of $8 trillion in housing wealth lead to sharp falloff in consumption. While the housing wealth effect is a long-established and widely accepted economic phenomenon, most discussions of the financial crisis act as though this effect does not exist. The wealth created by the run-up in house prices led to a consumption boom as the saving rate fell to near zero. With the collapse of the bubble, consumption fell back as the wealth that has been driving it disappeared.
Source: Bureau of Economic Analysis.
However, contrary to what is widely asserted, for example by David Leonhardt in his column today, consumption remains high, not low. The saving rate averaged more than 8.0 percent of disposable income in the years prior to the rise of the stock bubble in the 90s. Currently, it is between 4 and 5 percent of disposable income. If anything, we should be asking why consumption is so high, not why it is low.
It would be too absurd to expect bubble levels of consumption in the absence of the bubble. However this is what proponents of the financial crisis theory seem to be arguing. In short, the collapse of the bubble led to a gap of more than $1 trillion in lost demand due to the plunge in construction and the falloff in consumption. What if any part of this requires a story about the financial crisis?
It is remarkable how people keep insisting, in spite of all the evidence to the contrary, that the problem of the downturn is a financial crisis rather than simply a collapsed housing bubble. The latter story is simple. Housing construction was driven by bubble-inflated prices. When prices plunged, construction collapsed. Not only did we no longer have inflated prices to drive construction, we also had an enormous oversupply as a result of 5 years of near record rates of construction. From 2006 to 2009 construction fell by more than 4 percentage points of GDP, leading to a loss of more than $600 billion in annual demand.
In addition, the loss of $8 trillion in housing wealth lead to sharp falloff in consumption. While the housing wealth effect is a long-established and widely accepted economic phenomenon, most discussions of the financial crisis act as though this effect does not exist. The wealth created by the run-up in house prices led to a consumption boom as the saving rate fell to near zero. With the collapse of the bubble, consumption fell back as the wealth that has been driving it disappeared.
Source: Bureau of Economic Analysis.
However, contrary to what is widely asserted, for example by David Leonhardt in his column today, consumption remains high, not low. The saving rate averaged more than 8.0 percent of disposable income in the years prior to the rise of the stock bubble in the 90s. Currently, it is between 4 and 5 percent of disposable income. If anything, we should be asking why consumption is so high, not why it is low.
It would be too absurd to expect bubble levels of consumption in the absence of the bubble. However this is what proponents of the financial crisis theory seem to be arguing. In short, the collapse of the bubble led to a gap of more than $1 trillion in lost demand due to the plunge in construction and the falloff in consumption. What if any part of this requires a story about the financial crisis?
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David Brooks on raising the age of eligibility for Social Security and Medicare:
“Have you looked at 67-year-olds recently? They look the way 40-year-olds used to look.”
David Brooks on raising the age of eligibility for Social Security and Medicare:
“Have you looked at 67-year-olds recently? They look the way 40-year-olds used to look.”
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Ruth Marcus commits just about every major error in budget analysis in her Washington Post column this morning. To start with, she warns of the fiscal cliff at the end of the year:
“A fiscal cliff looms at year’s end, when a cornucopia of tax cuts is set to expire and a $1.2?trillion spending sequester kicks in. Like Wile E. Coyote, we are about to suddenly look down at a gaping void.”
Wow, that sounds really scary. Of course this is the sort of nonsense that can only appear in the Washington Post and similar publications. Contrary to what Marcus wants us to believe, there is no Wile E. Coyote moment waiting at year-end. On the tax side, beginning in January we would start to see more money deducted from our paychecks. Since most of us are not paid in advance, we would first begin to see any effect on the tax side when we get our paychecks at the middle or end of the month. If there is an expectation that Congress and the President are likely to work out a deal that preserves most of the current tax cuts, then the impact on consumer spending and the economy in January will be close to zero.
On the spending side, the $1.2 trillion figure is one that makes sense if we assume that Congress will never revisit spending policy over the next decade. That’s right, it has nothing to do with January of 2013, it refers to spending over the next decade. (Hey, this is the Washington Post.) The actual impact on spending in January is likely to be minimal, unless President Obama wants to slow spending to make a point. (The president has enormous control over the timing of spending.)
In short, there is nothing resembling a cliff or a Wile E. Coyote moment, these are fictions that only exist in the Washington Post and similar locations. The purpose of this fabrication is to advance their agenda for their preferred plan for spending cuts and tax increases. As Marcus tells us in the next paragraph:
“Behind the scenes, serious people in the administration and Congress, of both parties, are discussing ways to avert the economic shock of suddenly hiking taxes and throttling back spending. But there can be no pathway to success unless enough partisans on both sides give up on their foundational myths: for Republicans, that the fiscal challenge can be solved through spending cuts alone; for Democrats, that tax increases on the wealthy will suffice (emphasis added).”
Yes, thank God for serious people. You would recognize these serious people as the folks that were too thick to recognize the $8 trillion housing bubble, the collapse of which wrecked the economy; oh, and by the way, also gave us trillion dollar annual deficits. They were too busy yelling about budget deficits. (I’m not kidding, they were screaming about budget deficits even when the deficit was less than 2.0 percent of GDP.)
Contrary to what Marcus and the Serious People want people to believe, there is no spending problem, there is a problem of out of control health care costs. The United States pays more than twice as much per person for its health care as the average for people in other wealthy countries, with little to show in the way of health outcomes. If we paid the same amount as any other wealthy country we would be looking at huge budget surpluses, not deficits.
The deception here is simple and extremely important. Honest people would talk about the need to reform the health care system. That addresses the health care cost problem that the country really does face. Marcus and the Serious People would instead want to leave the broken system intact and just have the government pick up less of the tab.
This difference has enormous implications not only for access to health care but also for the distribution of income. Fixing the health care system means whacking the bloated incomes received by the drug industry, the insurance industry, the medical equipment industry and doctors (especially highly paid medical specialists). The route chosen by Marcus and the Serious People protects the income of these people. It instead will force lower and middle income people to get by without adequate care. This is the choice that the Post is doing its best to conceal from its readers.
Ruth Marcus commits just about every major error in budget analysis in her Washington Post column this morning. To start with, she warns of the fiscal cliff at the end of the year:
“A fiscal cliff looms at year’s end, when a cornucopia of tax cuts is set to expire and a $1.2?trillion spending sequester kicks in. Like Wile E. Coyote, we are about to suddenly look down at a gaping void.”
Wow, that sounds really scary. Of course this is the sort of nonsense that can only appear in the Washington Post and similar publications. Contrary to what Marcus wants us to believe, there is no Wile E. Coyote moment waiting at year-end. On the tax side, beginning in January we would start to see more money deducted from our paychecks. Since most of us are not paid in advance, we would first begin to see any effect on the tax side when we get our paychecks at the middle or end of the month. If there is an expectation that Congress and the President are likely to work out a deal that preserves most of the current tax cuts, then the impact on consumer spending and the economy in January will be close to zero.
On the spending side, the $1.2 trillion figure is one that makes sense if we assume that Congress will never revisit spending policy over the next decade. That’s right, it has nothing to do with January of 2013, it refers to spending over the next decade. (Hey, this is the Washington Post.) The actual impact on spending in January is likely to be minimal, unless President Obama wants to slow spending to make a point. (The president has enormous control over the timing of spending.)
In short, there is nothing resembling a cliff or a Wile E. Coyote moment, these are fictions that only exist in the Washington Post and similar locations. The purpose of this fabrication is to advance their agenda for their preferred plan for spending cuts and tax increases. As Marcus tells us in the next paragraph:
“Behind the scenes, serious people in the administration and Congress, of both parties, are discussing ways to avert the economic shock of suddenly hiking taxes and throttling back spending. But there can be no pathway to success unless enough partisans on both sides give up on their foundational myths: for Republicans, that the fiscal challenge can be solved through spending cuts alone; for Democrats, that tax increases on the wealthy will suffice (emphasis added).”
Yes, thank God for serious people. You would recognize these serious people as the folks that were too thick to recognize the $8 trillion housing bubble, the collapse of which wrecked the economy; oh, and by the way, also gave us trillion dollar annual deficits. They were too busy yelling about budget deficits. (I’m not kidding, they were screaming about budget deficits even when the deficit was less than 2.0 percent of GDP.)
Contrary to what Marcus and the Serious People want people to believe, there is no spending problem, there is a problem of out of control health care costs. The United States pays more than twice as much per person for its health care as the average for people in other wealthy countries, with little to show in the way of health outcomes. If we paid the same amount as any other wealthy country we would be looking at huge budget surpluses, not deficits.
The deception here is simple and extremely important. Honest people would talk about the need to reform the health care system. That addresses the health care cost problem that the country really does face. Marcus and the Serious People would instead want to leave the broken system intact and just have the government pick up less of the tab.
This difference has enormous implications not only for access to health care but also for the distribution of income. Fixing the health care system means whacking the bloated incomes received by the drug industry, the insurance industry, the medical equipment industry and doctors (especially highly paid medical specialists). The route chosen by Marcus and the Serious People protects the income of these people. It instead will force lower and middle income people to get by without adequate care. This is the choice that the Post is doing its best to conceal from its readers.
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