Robert Samuelson Takes on NYT Editorial Board: Government Does Not Create Jobs!

October 25, 2012

25 Octubre 2012

Robert Samuelson was sufficiently outraged by a NYT editorial claiming that the government creates jobs that for the first time in his 35 years as a columnist he felt the need to attack a newspaper editorial. Samuelson called the NYT view "the flat earth theory of job creation" in his column's headline. Since on its face it might be a bit hard to understand -- there are lots of people who do work for the government and get paychecks -- let's look more closely at what Samuelson has to say on the topic. Samuelson tells readers: "It’s true that, legally, government does expand employment. But economically, it doesn’t — and that’s what people usually mean when they say 'government doesn’t create jobs.' What the Times omits is the money to support all these government jobs. It must come from somewhere — generally, taxes or loans (bonds, bills). But if the people whose money is taken via taxation or borrowing had kept the money, they would have spent most or all of it on something — and that spending would have boosted employment." Okay, so we can at least agree that all of those people working as teachers, firefighters, forest rangers etc. do legally have jobs. That seems like progress. But let's look at the second part of the story: "the money to support all these government jobs. It must come from somewhere." Yes, that part is true also. But the last time I looked, the money to pay workers at Apple, General Electric, and Goldman Sachs also came from somewhere. Where's the difference? Samuelson tells us that if the government didn't tax or borrow or the money to pay its workers (he makes a recession exception later in the piece) people "would have spent most or all of it on something -- and that spending would have boosted employment." Again, this is true, but how does it differ from the private sector? If the new iPhone wasn't released last month people would have spent most or all of that money on something -- and that spending would have boosted employment. Does this mean that workers at Apple don't have real jobs either? The confusion gets even greater when we start to consider the range of services that can be provided by either the public or private sector. In Robert Samuelson's world we know that public school teachers don't have real jobs, but what about teachers at private schools? Presumably the jobs held by professors at major public universities, like Berkeley or the University of Michigan are not real, but the jobs held at for-profit universities, like Phoenix or the Washington Post's own Kaplan Inc., are real.

China and Protectionism: It Ain't Quite as Simple as They Tell Us

By Dean BakerDean Baker

October 24, 2012

24 Octubre 2012

Eduardo Porter has an interesting column on Governor Romney's threat to declare China a "currency manipulator" on day 1 of his administration. He makes the point that the real value of China's currency has risen substantially against the dollar in the last two years. He also notes that China is not the only country that deliberately props up the dollar relative to its own currency. Most importantly, he points out (as I have frequently noted) that declaring China a currency manipulator does nothing by itself. Inevitably the outcome of the currency issue would depend on a process of negotiation with China. This is all true. However in the process of making his case, Porter takes advantage of a study by Gary Hufbauer on the cost of U.S. tariffs on imports of tires from China, which is more than a little suspect. Hufabauer, who is famous for predicting that NAFTA would create 250,000 jobs by increasing the U.S. trade surplus with Mexico, calculated the country paid over $900,000 for each job it saved in the tire industry as a result of the tariff. Most of this money was paid to other countries, since most tires are imported. He concluded that the net effect of higher tire prices was a modest loss of jobs, since consumers had less money to spend on other items. In addition, China retaliated by imposing barriers on imports of chicken parts that Hufbauer calculates reduced exports by $1 billion. There are several aspects to Hufbauer's analysis that are very questionable. The most important is that he ignored the timing of the tariff. It was imposed in September of 2009, just as the car industry was recovering from its recession lows. Hufbauer attributes all the rise in tire prices in the fall of 2009 to the tariff. However, car prices more generally also rose in the fall of 2009 in response to the pick-up in demand. At the time the tariff was imposed in September of 2009 car prices were actually somewhat lower than their level of two years earlier. (They have risen by about 7 percent in total since the time the tariff was imposed.) Hufabuer makes no effort to control for the uptick in car demand in assessing the impact of the tariff on tire prices, which means he has almost certainly overstated its impact. Hufbauer also makes a point of noting the open retaliation by China -- its tariffs on imports of chicken parts -- without taking into account the possibility that the threat of tariffs affected China' behavior in other areas. It is possible that China has limited the subsidies it has applied to other export industries in response to the tariff on tires. This would have reduced their exports to the United States and increased employment in other industries. China would of course not advertise the fact that it was responding to a tariff by adjusting its behavior in other areas. Whether it did or not would change its behavior in other areas would require a close examination of China's conduct. Hufbauer simply assumed that there was no response to the tariff other than the public retaliation on imports on chicken parts.

Income Inequality and Globalization: The Protectionists Rule!

By Dean BakerDean Baker

October 24, 2012

24 Octubre 2012

David Leonhardt tells readers today that income inequality is primarily due to technology and globalization. It is possible to tell the story of technology if you are prepared to jump over a few hoops. (The big problem is that economists confidently told us in the 90s that technology favored people with college degrees. In the last decade it seems to only favor people with advanced degrees. If that sounds like a "make it up as you go along" story, welcome to the state of modern economics.) However, the globalization story requires even more hand-waving. The simple story is that we have hundreds of millions of people in developing countries who are prepared to work for a fraction of the wages of our manufacturing workers. This has caused us to lose millions of manufacturing jobs, depressing the wages of both the remaining workers in the sector and the workers in other sectors who must compete with displaced manufacturing workers. This is undoubtedly a true story. However the part of globalization that economists seem to have difficulty understanding is that there are also tens of millions of potentially highly educated workers in the developing world who are willing to work for much lower pay than their counterparts in the United States. For example, while the average doctor in the United States gets close to $250,000 a year, there would be no shortage of doctors in India, Mexico, China and elsewhere who would be happy to train to U.S. standards and work for half this wage. The same would be true of lawyers, dentists, economists and all the other highly paid professions. The reason that huge numbers of foreign professionals have not come to the United States and depressed the wages of the highest earning workers in the United States is that we have a large number of professional and legal barriers that make it difficult for foreign professionals to work in the United States. (Note the use of the word "difficult," rather than "impossible." Economists often believe that because they know an Indian economist who teaches at a major university they have proven that there are no obstacles to foreign professionals working in the United States. This is sometimes referred to as the "Mexican avocado" theory of international trade. According to this theory, if I can buy an avocado grown in Mexico at my local supermarket I have proven that there are no barriers to imports of agricultural goods in the United States. This is of course a ridiculous view, but one that nonetheless usually arises in any discussion of professional barriers.)

The Protectionists are Worried About Doctor Shortages

By Dean BakerDean Baker

October 24, 2012

24 Octubre 2012

Bloomberg had a lengthy article warning of looming doctor shortages in the years ahead. Remarkably the piece never once mentioned the possibility of bringing more foreign doctors in the country.

Doctors in the United States get paid on average close to twice as much as their counterparts in Canada, Germany and other wealthy countries. The gap between the pay of doctors in the United States and in the developing world is considerably larger. As a result, if we eliminated the barriers that made it difficult for foreign doctors who train to our standards from practicing in the United States, we could count on a large number of foreign physicians entering the country. (It would be a simple matter to have a modest tax on the earnings of foreign physicians in the United States that would be repatriated to their home countries. This could be used to educate more doctors, thereby ensuring that the home country benefited from this arrangement as well.)

We could also make it easier for people in the United States to get medical care elsewhere, for example by standardizing liability rules to ensure that patients will have recourse in the event of malpractice and also establishing governmental licensing agencies to ensure the quality of care in other countries. Also, Medicare could have enormous savings if it allowed beneficiaries to buy into the lower cost health care systems of other countries. Having more people getting medical care in other countries will reduce the demand for doctors in the United States.

[Thanks to Steve Hamlin for calling this one to my attention.]

Bloomberg had a lengthy article warning of looming doctor shortages in the years ahead. Remarkably the piece never once mentioned the possibility of bringing more foreign doctors in the country.

Doctors in the United States get paid on average close to twice as much as their counterparts in Canada, Germany and other wealthy countries. The gap between the pay of doctors in the United States and in the developing world is considerably larger. As a result, if we eliminated the barriers that made it difficult for foreign doctors who train to our standards from practicing in the United States, we could count on a large number of foreign physicians entering the country. (It would be a simple matter to have a modest tax on the earnings of foreign physicians in the United States that would be repatriated to their home countries. This could be used to educate more doctors, thereby ensuring that the home country benefited from this arrangement as well.)

We could also make it easier for people in the United States to get medical care elsewhere, for example by standardizing liability rules to ensure that patients will have recourse in the event of malpractice and also establishing governmental licensing agencies to ensure the quality of care in other countries. Also, Medicare could have enormous savings if it allowed beneficiaries to buy into the lower cost health care systems of other countries. Having more people getting medical care in other countries will reduce the demand for doctors in the United States.

[Thanks to Steve Hamlin for calling this one to my attention.]

How Much Does Charles Lane Get Paid to Complain About Being Unable to Compete With the Post Office?

By Dean BakerDean Baker

October 23, 2012

23 Octubre 2012

I’m not kidding. Charles Lane’s column in the Washington Post is quite literally complaining about the fact that the Washington Post stands to lose business to the postal service. Lane is upset that the postal service has contracted with a major distributor of ads to use the mail service to bring the material to people’s houses. Previously this material was distributed largely by newspapers like the Washington Post, which means that the Post and other newspapers stand to lose from the deal.

Lane is openly upset about this. He wants the post office to go out of business because he has decided that it is technologically obsolete.

Of course any business will eventually become technologically obsolete if it doesn’t adapt. Congress has largely put the post office into an impossible squeeze where it has insisted that it be run at a profit, along business lines, while at the same time it has consistently given into whiners from rival businesses, like Lane, who get upset any time they face being out-competed by this 19th century relic.

Businesses tend to get their way since they use their political connections to rein in the post office. For example, about a decade ago the postal service ran a very successful set of ads that highlighted the fact that its express mail was about a quarter of the price of the overnight delivery services of Fed Ex or UPS. The two competitors went to court to stop the ads. When the court told them to get lost, Fed Ex and UPS went to Congress and stopped the ads.

The post office used to provide banking services to much of the population. However, the wizards in the financial sector didn’t like the competition, so they had it shut down.

Now we have Charles Lane and the Washington Post complaining that the technologically obsolete postal service is undercutting it in its ability to deliver junk ads to people’s homes. Market economies are so tough!

I’m not kidding. Charles Lane’s column in the Washington Post is quite literally complaining about the fact that the Washington Post stands to lose business to the postal service. Lane is upset that the postal service has contracted with a major distributor of ads to use the mail service to bring the material to people’s houses. Previously this material was distributed largely by newspapers like the Washington Post, which means that the Post and other newspapers stand to lose from the deal.

Lane is openly upset about this. He wants the post office to go out of business because he has decided that it is technologically obsolete.

Of course any business will eventually become technologically obsolete if it doesn’t adapt. Congress has largely put the post office into an impossible squeeze where it has insisted that it be run at a profit, along business lines, while at the same time it has consistently given into whiners from rival businesses, like Lane, who get upset any time they face being out-competed by this 19th century relic.

Businesses tend to get their way since they use their political connections to rein in the post office. For example, about a decade ago the postal service ran a very successful set of ads that highlighted the fact that its express mail was about a quarter of the price of the overnight delivery services of Fed Ex or UPS. The two competitors went to court to stop the ads. When the court told them to get lost, Fed Ex and UPS went to Congress and stopped the ads.

The post office used to provide banking services to much of the population. However, the wizards in the financial sector didn’t like the competition, so they had it shut down.

Now we have Charles Lane and the Washington Post complaining that the technologically obsolete postal service is undercutting it in its ability to deliver junk ads to people’s homes. Market economies are so tough!

Two Percent GDP Growth Is Not Good News

By Dean BakerDean Baker

October 23, 2012

23 Octubre 2012

The Washington Post had an article highlighting the Fed’s commitment to continue to buy long-term bonds for the foreseeable future, even if the economy looks somewhat better. It then gives a list of what it presents as relatively positive recent economic reports and says that the Fed intends to still continue its bond buying policies.

One of the items on this list is a forecast that the economy will grow 2.0 percent in the third quarter. It is difficult to view this as positive. The Congressional Budget Office puts the economy’s potential growth rate at 2.4-2.5 percent. This means that with a 2.0 percent growth rate the economy is falling further below its potential. With a gap that is already close to 6.0 percent of GDP we should be seeing growth rates that far exceed the economy’s potential rate of growth in order to get us back to potential GDP and full employment.

The Washington Post had an article highlighting the Fed’s commitment to continue to buy long-term bonds for the foreseeable future, even if the economy looks somewhat better. It then gives a list of what it presents as relatively positive recent economic reports and says that the Fed intends to still continue its bond buying policies.

One of the items on this list is a forecast that the economy will grow 2.0 percent in the third quarter. It is difficult to view this as positive. The Congressional Budget Office puts the economy’s potential growth rate at 2.4-2.5 percent. This means that with a 2.0 percent growth rate the economy is falling further below its potential. With a gap that is already close to 6.0 percent of GDP we should be seeing growth rates that far exceed the economy’s potential rate of growth in order to get us back to potential GDP and full employment.

• Affordable Care Act

Robert Samuelson and the Affordable Care Act: Almost Half Right

By Dean BakerDean Baker

October 22, 2012

22 Octubre 2012

Robert Samuelson goes after the Affordable Care Act (ACA) in his column today. Remarkably, he is almost half right. His target is the provision that larger employers must provide insurance for full-time employees, which he says could amount to $5,000 a year. He tells readers that this provision will both lead to less hiring and also encourage employers to keep workers’ hours below the 30 hour cutoff, both of which would be undesirable outcomes.

This is partly right, but only partly. The ACA does not actually require larger employers to buy insurance policies for their workers. It gives them the option of paying a penalty of $2000 per worker, with the first 30 workers being exempt. This means that an employer of 60 workers who did not want to offer insurance would face a penalty of $60,000 or $1,000 per worker. (One thousand dollars is only one-fifth of Samuelson’s $5,000 number, but if we give him the marginal cost of hiring another worker we get to 40 percent, which is almost half.)

For a full-time worker this $1,000 penalty would come to 50 cents an hour. That is much smaller than recent increases in the minimum wage which have not been associated with any job loss according to a number of academic studies. Therefore, we might conclude that Samuelson’s concerns about the ACA causing job loss have little foundation outside of Washington Postland.

However there is still the issue of gaming the system. Some employers will undoubtedly be happy to save themselves $2,000 by reducing their workers’ hours from just over 30 per week to just under 30 per week. This would be bad news for workers at low-paying jobs who likely need these hours.

While Samuelson wants to throw up his hands and say we therefore should get rid of Obamacare, more serious people would say that we could look to amend the bill to have the penalties based on hours worked rather than the number of full-time workers. This provision on full-time workers was put in place by an amendment to the Senate bill. The original House bill had a more reasonable provision and it would not be difficult to design an amendment that did not base penalties on the number of full-time workers, but rather total hours worked. For those familiar with arithmetic, such calculations are not difficult.

There is another important point on this topic that Samuelson apparently missed. Historically insurance was provided as a per worker benefit, making it a fixed overhead cost. (It is increasingly common for employers to pro-rate its payment for insurance based on hours worked, but this practice is still the exception.) This meant that employers would rather have workers put in longer workweeks, possibly even paying an overtime premium, rather than hiring additional workers and paying for health insurance.

This is a major distortion of the labor market from the current system. It is undoubtedly one reason that full-time workers in the United States put in 20 percent more hours a year on average than do workers in western Europe. The notion that we somehow have a perfect labor market now, into which the ACA will introduce distortions, is absurd on its face.

Robert Samuelson goes after the Affordable Care Act (ACA) in his column today. Remarkably, he is almost half right. His target is the provision that larger employers must provide insurance for full-time employees, which he says could amount to $5,000 a year. He tells readers that this provision will both lead to less hiring and also encourage employers to keep workers’ hours below the 30 hour cutoff, both of which would be undesirable outcomes.

This is partly right, but only partly. The ACA does not actually require larger employers to buy insurance policies for their workers. It gives them the option of paying a penalty of $2000 per worker, with the first 30 workers being exempt. This means that an employer of 60 workers who did not want to offer insurance would face a penalty of $60,000 or $1,000 per worker. (One thousand dollars is only one-fifth of Samuelson’s $5,000 number, but if we give him the marginal cost of hiring another worker we get to 40 percent, which is almost half.)

For a full-time worker this $1,000 penalty would come to 50 cents an hour. That is much smaller than recent increases in the minimum wage which have not been associated with any job loss according to a number of academic studies. Therefore, we might conclude that Samuelson’s concerns about the ACA causing job loss have little foundation outside of Washington Postland.

However there is still the issue of gaming the system. Some employers will undoubtedly be happy to save themselves $2,000 by reducing their workers’ hours from just over 30 per week to just under 30 per week. This would be bad news for workers at low-paying jobs who likely need these hours.

While Samuelson wants to throw up his hands and say we therefore should get rid of Obamacare, more serious people would say that we could look to amend the bill to have the penalties based on hours worked rather than the number of full-time workers. This provision on full-time workers was put in place by an amendment to the Senate bill. The original House bill had a more reasonable provision and it would not be difficult to design an amendment that did not base penalties on the number of full-time workers, but rather total hours worked. For those familiar with arithmetic, such calculations are not difficult.

There is another important point on this topic that Samuelson apparently missed. Historically insurance was provided as a per worker benefit, making it a fixed overhead cost. (It is increasingly common for employers to pro-rate its payment for insurance based on hours worked, but this practice is still the exception.) This meant that employers would rather have workers put in longer workweeks, possibly even paying an overtime premium, rather than hiring additional workers and paying for health insurance.

This is a major distortion of the labor market from the current system. It is undoubtedly one reason that full-time workers in the United States put in 20 percent more hours a year on average than do workers in western Europe. The notion that we somehow have a perfect labor market now, into which the ACA will introduce distortions, is absurd on its face.

NPR Sets Straight All Those Silly People Who Thought Unemployment Was the Country's Biggest Problem

By Dean BakerDean Baker

October 22, 2012

22 Octubre 2012

Almost five years after the start of the recession we still have close to 25 million people who are unemployed, underemployed, or who have given up work altogether. Given that this is ruining the lives of millions of workers and their children we might think that this is the country’s most important problem. Fortunately, we have National Public Radio (NPR) to set us straight.

NPR presented a segment this morning that is largely based on the views of Nariman Behravesh, the chief economist of the forecasting firm IHS Global Insight and author of Spin-Free Economics: A No-Nonsense, Nonpartisan Guide to Today’s Global Economic Debates. The last part of the segment told listeners:

“But going forward, America’s role in the world will be largely shaped by how well Congress handles the budget deficit problems in coming months, he [Behravesh] said. As other countries, especially in Europe, grapple with the problem of too much government debt, people around the world are looking to the United States for moral leadership, he said.

“If the United States shows that it’s possible for democracies to discipline themselves and control their debts, then its economic and soft power may surge …”

Wow, isn’t that impressive. So Europe, China and the rest of the world will be really impressed if the United States throws even more people out of work as long as it reduces its budget deficit! That’s interesting, had it not been for NPR I never would have known people in the rest of the world thought this way.

It is an especially bizarre way to think since the large budget deficits of the last few years are almost entirely due to the downturn that followed in the wake of the collapse of the housing bubble. The chart below shows the actual deficit for 2007 and the projections for 2008-2012 that the Congressional Budget Office made in January of 2008, before it recognized the impact of the collapse of the housing bubble on the economy. It also shows the actual deficits for these years.

Source: Congressional Budget Office.

As can be seen the deficit was actually quite modest prior to the collapse of the housing bubble and was projected to remain small in the year ahead. In fact, it was projected to turn to a surplus in fiscal year 2012 after the expiration of the Bush tax cuts, although even if the tax cuts had remained in place, the deficits would still have been consistent with a declining debt to GDP ratio.

There were no big new programs that exploded the deficit in 2008 and 2009, rather the collapse of the economy caused tax collections to plunge and spending on transfer payments like unemployment insurance and food stamps to increase. In addition, the one-time spending and tax cuts in the stimulus also added to the deficit. However, there were no substantial permanent changes to underlying tax and spending policies that would have led to permanently larger deficits.

In short, NPR wants its listeners to believe that a deficit that is attributable to a collapsed economy is a bigger problem than the collapsed economy itself. That takes great insight!

[Thanks to Joe Seydl for calling this one to my attention.]

Almost five years after the start of the recession we still have close to 25 million people who are unemployed, underemployed, or who have given up work altogether. Given that this is ruining the lives of millions of workers and their children we might think that this is the country’s most important problem. Fortunately, we have National Public Radio (NPR) to set us straight.

NPR presented a segment this morning that is largely based on the views of Nariman Behravesh, the chief economist of the forecasting firm IHS Global Insight and author of Spin-Free Economics: A No-Nonsense, Nonpartisan Guide to Today’s Global Economic Debates. The last part of the segment told listeners:

“But going forward, America’s role in the world will be largely shaped by how well Congress handles the budget deficit problems in coming months, he [Behravesh] said. As other countries, especially in Europe, grapple with the problem of too much government debt, people around the world are looking to the United States for moral leadership, he said.

“If the United States shows that it’s possible for democracies to discipline themselves and control their debts, then its economic and soft power may surge …”

Wow, isn’t that impressive. So Europe, China and the rest of the world will be really impressed if the United States throws even more people out of work as long as it reduces its budget deficit! That’s interesting, had it not been for NPR I never would have known people in the rest of the world thought this way.

It is an especially bizarre way to think since the large budget deficits of the last few years are almost entirely due to the downturn that followed in the wake of the collapse of the housing bubble. The chart below shows the actual deficit for 2007 and the projections for 2008-2012 that the Congressional Budget Office made in January of 2008, before it recognized the impact of the collapse of the housing bubble on the economy. It also shows the actual deficits for these years.

Source: Congressional Budget Office.

As can be seen the deficit was actually quite modest prior to the collapse of the housing bubble and was projected to remain small in the year ahead. In fact, it was projected to turn to a surplus in fiscal year 2012 after the expiration of the Bush tax cuts, although even if the tax cuts had remained in place, the deficits would still have been consistent with a declining debt to GDP ratio.

There were no big new programs that exploded the deficit in 2008 and 2009, rather the collapse of the economy caused tax collections to plunge and spending on transfer payments like unemployment insurance and food stamps to increase. In addition, the one-time spending and tax cuts in the stimulus also added to the deficit. However, there were no substantial permanent changes to underlying tax and spending policies that would have led to permanently larger deficits.

In short, NPR wants its listeners to believe that a deficit that is attributable to a collapsed economy is a bigger problem than the collapsed economy itself. That takes great insight!

[Thanks to Joe Seydl for calling this one to my attention.]

The End of China Bashing: Toward a Serious Discussion of the Trade Deficit

By Dean BakerDean Baker

October 22, 2012

22 Octubre 2012

Paul Krugman and Ezra Klein both say, following Joe Gagnon, that the time for criticizing China for "currency manipulation" has passed. This is partly true in the sense that China's currency has risen substantially in real terms against the dollar over the last few years. However this does not mean either that the relative value of the dollar and the yuan is now at a sustainable level or that China is not continuing as a matter of policy to prop up the dollar against its currency. To see the former point, it is important to remember that China is a fast growing developing country. Ordinarily such countries are expected to run large trade deficits. The idea is that capital can be better used in fast growing countries like China than in slow growing wealthy countries. Since capital will get a higher return in developing countries, we expect capital to flow from rich countries to poor countries. The flow of capital would imply a trade deficit for developing countries. Effectively this trade deficit would allow developing countries to sustain consumption levels even as they build up their capital stock. China, along with many other fast developing countries, is running a large trade surplus. This is not sustainable. To see this point imagine we have a developing country that is growing at the rate of 7 percent annually, the slower rate of growth that China is now seeing. Suppose it sustains a trade surplus of 3.5 percent of GDP, roughly the amount projected by the IMF for the next five years. For simplicity we'll make the United States the only other country in the world and have it grow at a 2.5 percent annual rate. If China and the U.S. start at the same size, after 20 years China's annual trade surplus will be equal to 8.3 percent of U.S. GDP. To have sustained this surplus it will have bought an amount of assets that exceeds 100 percent of U.S. GDP in 2032. If we carry this out another twenty years then the annual deficit in the U.S. will be 19.5 percent of GDP and China's holdings of U.S. assets will exceed 300 percent of 2052 GDP. Clearly this does not make sense and we will not see these sorts of deficits running in the wrong direction indefinitely. As far as the second part, China is still accumulating U.S. assets as part of an official policy of pegging its exchange rate. In other words it is deliberately propping up the dollar against its currency. The point that Gagnon makes is that China is not alone in this exercise and it is not even the biggest culprit, relative to the size of its economy. In this sense the China-bashing that Governor Romney and other politicians have practiced is inappropriate.

The Washington Post Tries to Scare You on Public Sector Pensions

By Dean BakerDean Baker

October 21, 2012

21 Octubre 2012

The Washington Post rarely tries to conceal its contempt for unions or middle class workers. In keeping with this spirit it ran a column today that was intended to scare readers about the extent to which public sector pensions will impose a burden on taxpayers in the years ahead. The column projects that the unfunded liabilities of public sector pensions will require: "on average, a tax increase of $1,385 per U.S. household per year would be required, starting immediately and growing with the size of the public sector." Now that's pretty scary, right? It sure looks like we better go after those public sector workers and their generous pensions. The column, by two finance professors, Robert Novy-Marx of Rochester University and Joshua Rauh from Stanford, uses two simple tricks to generate its scary projections of household liabilities. First is assumes that pensions will receive impossibly low returns on their assets. The piece notes: "These finding were calculated assuming that states invest somewhat cautiously and achieve annual returns of 2 percent above the rate of inflation. But even if states continue to make massive bets that the stock market will bail them out, and if the market were to perform as well over the next 30 years as it did over the past half-century (an unprecedented bull market), the required per-U.S. household tax increase would still amount to $756 per year." Actually, all the stock market has to do to get us to this $756 per year figure is to grow at the same pace as the economy. Using the standard growth projections from the Congressional Budget Office and other official forecasters, if the price to earnings ratio in the stock market remains constant over the next 30 years then we will see the lower liability figure than the pension funds themselves project. This is hardly a heroic assumption. In fact, unless Novy-Marx and Rauh want to dispute the official growth projections, it is almost impossible to construct scenarios in which stock returns will come in much below the levels assumed by the pension funds.The point is simple, it was absurd to project high returns in the stock market in the late 90s, when the ratio of stock prices to trend earnings was over 30 to 1 or even in the last decade when it was still over 20 to 1. However with a current ratio that is close to the historic average of 15 to 1, real returns of 7 percent are very reasonable. People who understand the stock market and saw the stock bubble could have explained this fact to Post readers, but such views are excluded from the pages of the Post in order to avoid embarrassing its writers, editors, and columnists, all of whom completely missed both the stock and housing bubbles.