David Brooks devotes his column today to profiling Elon Musk. Musk emigrated to Canada from South Africa when he was 15, eventually coming down to attend school in the United States. According to Brooks, he was one of the leading figures in PayPal. He later helped finance SpaceX, a space exploration company; Tesla, an electric car company, as well as several other companies.
After describing Musk’s extraordinary career and lifestyle, Brooks tells readers:
“Today, grandiosity is out of style. We’ve just been through a financial crisis fueled by people who got too big for their britches. We’ve got an online and media culture that specializes in ridiculing grand people.
Caution rules. The number of jobs created by business start-ups under President Obama is much lower than under the three previous presidents. The World Economic Forum ranks the competitiveness of nations, and the U.S. has lost ground in each of the last four years.
But, if growth is ever going to rebound, the U.S. will need a grandiosity rebound and the policies that encourage rich people with brass: immigration policies that attract people like Musk, tax rates that encourage risk and government policies that boost them along (SpaceX has benefited greatly from NASA, and Tesla received a big government loan).
Most of all, there has to be a culture that gives two cheers to grandiosity.”
These comments raise several important points. First, Brooks obviously missed the collapse of the housing bubble. Otherwise he would not have killed trees to tell us:
“The number of jobs created by business start-ups under President Obama is much lower than under the three previous presidents.”
Yes, and agricultural yields fall in a drought. We had a collapse in demand that preceded President Obama coming into office. News for Brooks: businesses expand less in downturns than in upturns. If Brooks wants to tell us that even when we adjust for the collapse of the housing bubble that business start-ups have created fewer jobs under President Obama than prior presidents, let’s see the evidence.
The second question is whether Brooks hero, Elon Musk, is really the sort of meek pathetic character that Brooks seems to be describing when he worries that we are discouraging entrepreneurialism. After all he tells us that:
“We’ve got an online and media culture that specializes in ridiculing grand people.”
Does this mean that we shouldn’t expect to see Musk and his fellow ambitious creative types start new businesses because someone might make fun of them on the web? Are these folks really that sensitive? Should we have a national fund that awards gold stars to bold entrepreneurs that they can wear on their foreheads? Brooks seems to think so. He could be right, I don’t know many (any?) of these people, but it would be a bit scary if our bold entrepreneurial types are really this sensitive.
The other point to raise about Brooks paean to Musk is that some of his ideas seem pretty crazy. Brooks tells us:
“Musk also told Businessweek about two other project designs he is working on. The first is something called the Hyperloop, a tube capable of taking people from downtown Los Angeles to downtown San Francisco in 30 minutes. The second is a vertical lift-off supersonic passenger jet that would surpass Boeing. He also hopes to open up a space colony on Mars within 10 or 15 years.”
I don’t know the details of any of these plans and these certainly are not my areas of expertise, but on the surface they don’t sound like viable enterprises. This point is important. Many entrepreneurs, big and small, come up with business plans that don’t make sense. In a well-working economy, they don’t get funding for these plans.
If entrepreneurs do get funding for nutty ideas, as was the case at the peak of the stock bubble in 1998-2000, then this is wasting resources that could have otherwise been used productively. It has the same effect on the economy as creating a department of waste, fraud and abuse that pays people to write up documents that get passed back and forth to each other and then thrown into the garbage. This creates jobs (people are getting paid to write up documents) but it is a net drain on the economy.
The idea that more entrepreneurship is always better than less entrepreneurship is ridiculous on its face. More good entrepreneurship is always better, but much entrepreneurship is not good.
In fact, the story is somewhat worse than just wasting resources as an abstract economic issue. Many people are persuaded to leave secure stable jobs to pursue ill-considered business ventures. The vast majority of new businesses fail. These failed entrepreneurs can find themselves mid-career unemployed, with no savings and few good job prospects. (In other words, they could become part of the 47 percent.) That is not a happy situation. It would not be a good thing if we had more people in this situation.
Brooks and many other entrepreneur worshippers don’t seem to appreciate the way business works. They seem to have a naive view that having more entrepreneurs or that allowing entrepreneurs to have greater access to capital is always good. This is obviously not true. A well-working economy allows entrepreneurs to get capital when they have good ideas, but it prevents them from raising capital when they are off the mark. If the economy doesn’t do the latter, then resources will be wasted, lives will be ruined, and the economy will not maintain good growth rates.
David Brooks devotes his column today to profiling Elon Musk. Musk emigrated to Canada from South Africa when he was 15, eventually coming down to attend school in the United States. According to Brooks, he was one of the leading figures in PayPal. He later helped finance SpaceX, a space exploration company; Tesla, an electric car company, as well as several other companies.
After describing Musk’s extraordinary career and lifestyle, Brooks tells readers:
“Today, grandiosity is out of style. We’ve just been through a financial crisis fueled by people who got too big for their britches. We’ve got an online and media culture that specializes in ridiculing grand people.
Caution rules. The number of jobs created by business start-ups under President Obama is much lower than under the three previous presidents. The World Economic Forum ranks the competitiveness of nations, and the U.S. has lost ground in each of the last four years.
But, if growth is ever going to rebound, the U.S. will need a grandiosity rebound and the policies that encourage rich people with brass: immigration policies that attract people like Musk, tax rates that encourage risk and government policies that boost them along (SpaceX has benefited greatly from NASA, and Tesla received a big government loan).
Most of all, there has to be a culture that gives two cheers to grandiosity.”
These comments raise several important points. First, Brooks obviously missed the collapse of the housing bubble. Otherwise he would not have killed trees to tell us:
“The number of jobs created by business start-ups under President Obama is much lower than under the three previous presidents.”
Yes, and agricultural yields fall in a drought. We had a collapse in demand that preceded President Obama coming into office. News for Brooks: businesses expand less in downturns than in upturns. If Brooks wants to tell us that even when we adjust for the collapse of the housing bubble that business start-ups have created fewer jobs under President Obama than prior presidents, let’s see the evidence.
The second question is whether Brooks hero, Elon Musk, is really the sort of meek pathetic character that Brooks seems to be describing when he worries that we are discouraging entrepreneurialism. After all he tells us that:
“We’ve got an online and media culture that specializes in ridiculing grand people.”
Does this mean that we shouldn’t expect to see Musk and his fellow ambitious creative types start new businesses because someone might make fun of them on the web? Are these folks really that sensitive? Should we have a national fund that awards gold stars to bold entrepreneurs that they can wear on their foreheads? Brooks seems to think so. He could be right, I don’t know many (any?) of these people, but it would be a bit scary if our bold entrepreneurial types are really this sensitive.
The other point to raise about Brooks paean to Musk is that some of his ideas seem pretty crazy. Brooks tells us:
“Musk also told Businessweek about two other project designs he is working on. The first is something called the Hyperloop, a tube capable of taking people from downtown Los Angeles to downtown San Francisco in 30 minutes. The second is a vertical lift-off supersonic passenger jet that would surpass Boeing. He also hopes to open up a space colony on Mars within 10 or 15 years.”
I don’t know the details of any of these plans and these certainly are not my areas of expertise, but on the surface they don’t sound like viable enterprises. This point is important. Many entrepreneurs, big and small, come up with business plans that don’t make sense. In a well-working economy, they don’t get funding for these plans.
If entrepreneurs do get funding for nutty ideas, as was the case at the peak of the stock bubble in 1998-2000, then this is wasting resources that could have otherwise been used productively. It has the same effect on the economy as creating a department of waste, fraud and abuse that pays people to write up documents that get passed back and forth to each other and then thrown into the garbage. This creates jobs (people are getting paid to write up documents) but it is a net drain on the economy.
The idea that more entrepreneurship is always better than less entrepreneurship is ridiculous on its face. More good entrepreneurship is always better, but much entrepreneurship is not good.
In fact, the story is somewhat worse than just wasting resources as an abstract economic issue. Many people are persuaded to leave secure stable jobs to pursue ill-considered business ventures. The vast majority of new businesses fail. These failed entrepreneurs can find themselves mid-career unemployed, with no savings and few good job prospects. (In other words, they could become part of the 47 percent.) That is not a happy situation. It would not be a good thing if we had more people in this situation.
Brooks and many other entrepreneur worshippers don’t seem to appreciate the way business works. They seem to have a naive view that having more entrepreneurs or that allowing entrepreneurs to have greater access to capital is always good. This is obviously not true. A well-working economy allows entrepreneurs to get capital when they have good ideas, but it prevents them from raising capital when they are off the mark. If the economy doesn’t do the latter, then resources will be wasted, lives will be ruined, and the economy will not maintain good growth rates.
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You can get paid lots of money in this town to try to convince people that the country’s biggest problem is not the fact that we have 25 million people unemployed, underemployed or out of the workforce altogether due to lack of job opportunities. Dana Milbank illustrates this point by touting his new favorite video game, Budget Hero. Budget Hero was apparently put together with lots of money from folks who want to distract the country from its real problems.
As all budget experts know, the real source of the projected long-term deficit disaster is the country’s broken health care system. We currently spend more than twice as much per person on health care as the average for people in other wealthy countries. We have little to show for this extra spending in terms of outcomes. The horror stories project that this ratio will rise to 3 or 4 to 1 in the decades ahead.
Real heroes try to expose this deception, calling attention to the fact that the underlying problem is a broken health care system. This is demonstrated at much lower cost in CEPR’s Health Care Budget Deficit Calculator. If we manage to fix the health care system (hey, how about a little trade here?) then the budget issues will be relatively minor. On the other hand, if we can zero out public sector health care programs like Medicare and Medicaid, but if we don’t fix our health care system, our Budget Heroes will still have left us with a disaster.
But hey, there’s no money in making this point.
You can get paid lots of money in this town to try to convince people that the country’s biggest problem is not the fact that we have 25 million people unemployed, underemployed or out of the workforce altogether due to lack of job opportunities. Dana Milbank illustrates this point by touting his new favorite video game, Budget Hero. Budget Hero was apparently put together with lots of money from folks who want to distract the country from its real problems.
As all budget experts know, the real source of the projected long-term deficit disaster is the country’s broken health care system. We currently spend more than twice as much per person on health care as the average for people in other wealthy countries. We have little to show for this extra spending in terms of outcomes. The horror stories project that this ratio will rise to 3 or 4 to 1 in the decades ahead.
Real heroes try to expose this deception, calling attention to the fact that the underlying problem is a broken health care system. This is demonstrated at much lower cost in CEPR’s Health Care Budget Deficit Calculator. If we manage to fix the health care system (hey, how about a little trade here?) then the budget issues will be relatively minor. On the other hand, if we can zero out public sector health care programs like Medicare and Medicaid, but if we don’t fix our health care system, our Budget Heroes will still have left us with a disaster.
But hey, there’s no money in making this point.
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The Washington Post ran a piece that highlighted the concerns of Richard Fisher, the President of the Dallas Federal Reserve Bank, that the Federal Reserve Board’s latest round of quantitative easing may lead to higher inflation. Fisher notes that financial markets indicate that investors are now anticipating higher rates of inflation than was the case before the Fed’s latest move.
It would have been worth noting that this is arguably the intention of the policy. This certainly is the goal of Paul Krugman and others who had advocated more aggressive action from the Fed. (Federal Reserve Board Chairman Ben Bernanke had advocated that Japan’s central bank deliberately target a higher inflation rate when he was still a professor at Princeton.)
Clearly Fisher views a higher rate of inflation as being a bad thing, but it would have been worth noting that more rapid inflation is considered to be desirable by many advocates of QE3.
The Washington Post ran a piece that highlighted the concerns of Richard Fisher, the President of the Dallas Federal Reserve Bank, that the Federal Reserve Board’s latest round of quantitative easing may lead to higher inflation. Fisher notes that financial markets indicate that investors are now anticipating higher rates of inflation than was the case before the Fed’s latest move.
It would have been worth noting that this is arguably the intention of the policy. This certainly is the goal of Paul Krugman and others who had advocated more aggressive action from the Fed. (Federal Reserve Board Chairman Ben Bernanke had advocated that Japan’s central bank deliberately target a higher inflation rate when he was still a professor at Princeton.)
Clearly Fisher views a higher rate of inflation as being a bad thing, but it would have been worth noting that more rapid inflation is considered to be desirable by many advocates of QE3.
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Good piece by Simon Johnson.
Good piece by Simon Johnson.
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Robert Samuelson used his column today to urge Mitt Romney to make the welfare state the major issue in the presidential race. For some reason Samuelson’s indictment of the welfare state missed many of the largest items.
For example, in listing the beneficiaries of government largess, Samuelson missed obvious ones like homeowners who benefit from the mortgage interest deduction, the deduction for property taxes, and the subsidy provided by government guarantees of mortgage debt. He also misses the benefit provided by the tax deduction for employer provided health insurance.
While most people may not have a sufficient understanding of the tax and budget system, Samuelson surely knows that if we give someone a $4,000 tax break by making their mortgage interest tax deductible, it is the same thing as if the government wrote them a $4,000 check as a housing subsidy. In both cases they fit the bill as “takers.”
Of course the really big beneficiaries of government largess are the folks who Samuelson neglects altogether. These would be people like the top executives at the Wall Street banks who benefit from the $60 billion in too big to fail insurance that is provided at no cost by the government. He would also talk about the hundreds of billions of dollars that the government transfers to the pharmaceutical industry each year by providing patent monopolies on prescription drugs. A similar amount goes to the tech industry. Samuelson could also talk about the selective protectionism in U.S. trade policy that redistributes income from most of us to highly paid professionals like doctors and lawyers.
These highly distortionary government interventions do not feature prominently on Samuelson’s list. He only seems interested in attacking government interventions that primarily benefit lower and middle class people.
Robert Samuelson used his column today to urge Mitt Romney to make the welfare state the major issue in the presidential race. For some reason Samuelson’s indictment of the welfare state missed many of the largest items.
For example, in listing the beneficiaries of government largess, Samuelson missed obvious ones like homeowners who benefit from the mortgage interest deduction, the deduction for property taxes, and the subsidy provided by government guarantees of mortgage debt. He also misses the benefit provided by the tax deduction for employer provided health insurance.
While most people may not have a sufficient understanding of the tax and budget system, Samuelson surely knows that if we give someone a $4,000 tax break by making their mortgage interest tax deductible, it is the same thing as if the government wrote them a $4,000 check as a housing subsidy. In both cases they fit the bill as “takers.”
Of course the really big beneficiaries of government largess are the folks who Samuelson neglects altogether. These would be people like the top executives at the Wall Street banks who benefit from the $60 billion in too big to fail insurance that is provided at no cost by the government. He would also talk about the hundreds of billions of dollars that the government transfers to the pharmaceutical industry each year by providing patent monopolies on prescription drugs. A similar amount goes to the tech industry. Samuelson could also talk about the selective protectionism in U.S. trade policy that redistributes income from most of us to highly paid professionals like doctors and lawyers.
These highly distortionary government interventions do not feature prominently on Samuelson’s list. He only seems interested in attacking government interventions that primarily benefit lower and middle class people.
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Ever since Governor Romney’s comment about writing off the 47 percent of households who don’t pay federal income tax became public, news stories and opinion pieces have been dominated by discussions of who does and does not pay taxes. This is great news for the one percent.
The obsession with taxes means that the one percent are playing a game that they can only win. The vast majority of the upward redistribution of income over the last three decades has been in before tax income. This has been brought about through a variety of changes in laws and institutions that had the effect of restructuring markets in ways that redistribute income upward.
For example, we have a trade policy that is designed to put downward pressure on the wages of manufacturing workers by putting them in direct competition with low-wage workers in the developing world. (Highly paid professionals like doctors and lawyers are still largely protected from such competition.) This downward pressure is amplified by the over-valued dollar, a policy that had its origins in the Clinton administration.
The implicit government insurance provided to too big to fail banks transfers around $60 billion a year to the shareholders and top executives at the big banks. Patent and copyright monopolies redistribute hundreds of billions a year from consumers to drug companies and the tech and entertainment industry.
Anti-union laws weaken the power of workers trying to organize for collective action, thereby reducing their ability to secure wage increases. (Chicago Mayor Rahm Emanuel was going to court to have union leaders thrown in jail if the teachers continued their strike.) And a Federal Reserve Board that throws workers out of work to meet inflation targets protects the wealth of creditors at the cost of undermining the bargaining power of workers.
These and other areas of public policy are the key factors determining the relative well-being of the rich and the rest of us. As long as we are obsessed with a discussion of whether the Bush tax cuts to the wealthy will continue, the policies responsible for the bulk of the upward redistribution over the last three decades will never be discussed. The current debate may be good news for President Obama’s re-election prospects, but it is not a positive development for those who don’t like to see the perpetuation of government policies that redistribute money upward. (Yes, this is all a plug for my free book, The End of Loser Liberalism: Making Markets Progressive.)
Ever since Governor Romney’s comment about writing off the 47 percent of households who don’t pay federal income tax became public, news stories and opinion pieces have been dominated by discussions of who does and does not pay taxes. This is great news for the one percent.
The obsession with taxes means that the one percent are playing a game that they can only win. The vast majority of the upward redistribution of income over the last three decades has been in before tax income. This has been brought about through a variety of changes in laws and institutions that had the effect of restructuring markets in ways that redistribute income upward.
For example, we have a trade policy that is designed to put downward pressure on the wages of manufacturing workers by putting them in direct competition with low-wage workers in the developing world. (Highly paid professionals like doctors and lawyers are still largely protected from such competition.) This downward pressure is amplified by the over-valued dollar, a policy that had its origins in the Clinton administration.
The implicit government insurance provided to too big to fail banks transfers around $60 billion a year to the shareholders and top executives at the big banks. Patent and copyright monopolies redistribute hundreds of billions a year from consumers to drug companies and the tech and entertainment industry.
Anti-union laws weaken the power of workers trying to organize for collective action, thereby reducing their ability to secure wage increases. (Chicago Mayor Rahm Emanuel was going to court to have union leaders thrown in jail if the teachers continued their strike.) And a Federal Reserve Board that throws workers out of work to meet inflation targets protects the wealth of creditors at the cost of undermining the bargaining power of workers.
These and other areas of public policy are the key factors determining the relative well-being of the rich and the rest of us. As long as we are obsessed with a discussion of whether the Bush tax cuts to the wealthy will continue, the policies responsible for the bulk of the upward redistribution over the last three decades will never be discussed. The current debate may be good news for President Obama’s re-election prospects, but it is not a positive development for those who don’t like to see the perpetuation of government policies that redistribute money upward. (Yes, this is all a plug for my free book, The End of Loser Liberalism: Making Markets Progressive.)
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Morning Edition had a segment this morning in which it touted new research from John List, a University of Chicago economist, that found that student test scores rose the most when teachers were given a bonus at the start of the year which they would lose, if their students didn’t score at a certain level. The argument is that teachers will more fear losing money they have already received than they value getting a bonus at the end of the year.
While this is an interesting result, there is an important problem with this approach that was not mentioned in the discussion (apart from issues raised about teachers teaching to tests). In general, workers do not like pay systems where their pay can be cut in ways that are unpredictable. (Test results are highly erratic, even the best teachers often have classes that do poorly.)
It is likely that if school systems had pay structures where the pay of teachers who did not meet certain standards was retroactively cut by 5-10 percent at the end of the year, they would have a more difficult time attracting teachers. This means that schools would have to offer higher average pay to attract the same teachers. Whether or not the higher pay offset whatever benefits came from this mechanism for structuring compensation would have to be examined, but it certainly is not obvious that it would.
Morning Edition had a segment this morning in which it touted new research from John List, a University of Chicago economist, that found that student test scores rose the most when teachers were given a bonus at the start of the year which they would lose, if their students didn’t score at a certain level. The argument is that teachers will more fear losing money they have already received than they value getting a bonus at the end of the year.
While this is an interesting result, there is an important problem with this approach that was not mentioned in the discussion (apart from issues raised about teachers teaching to tests). In general, workers do not like pay systems where their pay can be cut in ways that are unpredictable. (Test results are highly erratic, even the best teachers often have classes that do poorly.)
It is likely that if school systems had pay structures where the pay of teachers who did not meet certain standards was retroactively cut by 5-10 percent at the end of the year, they would have a more difficult time attracting teachers. This means that schools would have to offer higher average pay to attract the same teachers. Whether or not the higher pay offset whatever benefits came from this mechanism for structuring compensation would have to be examined, but it certainly is not obvious that it would.
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The NYT article on the decision by the Obama administration to file a WTO case against China told readers that the subsidies in dispute come to at least $1 billion since 2009. By comparison, China has exported $56 billion of car parts over this period. This implies that the subsidies have been around 2 percent of the price of the goods.
By comparison, if the dollar is 20 percent over-valued against the yuan, this would imply an effective subsidy of 20 percent of the price. In this case, the impact of an over-valued currency would be an order of magnitude larger than the impact of what the Obama administration claims are illegal subsidies.
The NYT article on the decision by the Obama administration to file a WTO case against China told readers that the subsidies in dispute come to at least $1 billion since 2009. By comparison, China has exported $56 billion of car parts over this period. This implies that the subsidies have been around 2 percent of the price of the goods.
By comparison, if the dollar is 20 percent over-valued against the yuan, this would imply an effective subsidy of 20 percent of the price. In this case, the impact of an over-valued currency would be an order of magnitude larger than the impact of what the Obama administration claims are illegal subsidies.
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Since we seem destined to have a national debate on the topic of government freeloaders in the wake of the Romney fundraising video, it might be worth asking how we think about someone getting hundreds of thousands of dollars a year for sitting on a corporate board for which they did little obvious work. Erskine Bowles, a possible future Treasury Secretary, is of course the poster child for such people.
Mr. Bowles has earned millions of dollars sitting on corporate boards over the last decade. The stock prices of the companies on whose boards he sat have mostly plummeted. Since 2003 the Erskine Bowles stock index has lost more than one third of its value. By comparison, the S&P 500 has risen by more than 50 percent. If Mr. Bowles was trying to serve shareholders, he has not done a very good job.
If people think that this is a private matter, with Mr. Bowles just ripping off shareholders while Governor Romney’s freeloaders are ripping off taxpayers, think again. One of the companies on whose board Mr. Bowles sat, General Motors, went bankrupt with substantial costs to the government. Another, Morgan Stanley, would have gone bankrupt without extraordinary assistance from the Fed and Treasury, which continues to this day in the form of implicit too big to fail insurance.
So, if we want to have a debate about people who freeload on the rest of the country, we should have folks like Erskine Bowles at center stage. Of course he is in a much higher income bracket than the folks who get Social Security or unemployment insurance from the government, but that fact should not be allowed to color the debate.
Since we seem destined to have a national debate on the topic of government freeloaders in the wake of the Romney fundraising video, it might be worth asking how we think about someone getting hundreds of thousands of dollars a year for sitting on a corporate board for which they did little obvious work. Erskine Bowles, a possible future Treasury Secretary, is of course the poster child for such people.
Mr. Bowles has earned millions of dollars sitting on corporate boards over the last decade. The stock prices of the companies on whose boards he sat have mostly plummeted. Since 2003 the Erskine Bowles stock index has lost more than one third of its value. By comparison, the S&P 500 has risen by more than 50 percent. If Mr. Bowles was trying to serve shareholders, he has not done a very good job.
If people think that this is a private matter, with Mr. Bowles just ripping off shareholders while Governor Romney’s freeloaders are ripping off taxpayers, think again. One of the companies on whose board Mr. Bowles sat, General Motors, went bankrupt with substantial costs to the government. Another, Morgan Stanley, would have gone bankrupt without extraordinary assistance from the Fed and Treasury, which continues to this day in the form of implicit too big to fail insurance.
So, if we want to have a debate about people who freeload on the rest of the country, we should have folks like Erskine Bowles at center stage. Of course he is in a much higher income bracket than the folks who get Social Security or unemployment insurance from the government, but that fact should not be allowed to color the debate.
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We know that the Washington Post’s editors really liked the report produced by Morgan Stanley director Erskine Bowles and former Senator Alan Simpson, the co-chairs of President Obama’s deficit commission, but that should not be a reason to misrepresent the report to readers. An article today referred to the report as “the report of the Simpson-Bowles deficit-reduction commission.”
Of course there was no report approved by the commission. According to the commission’s by-laws, a report would need the vote of 14 members to be approved. There was no report that received 14 votes, therefore there is no report from the commission. The Post is substituting its wishful thinking for the truth.
We know that the Washington Post’s editors really liked the report produced by Morgan Stanley director Erskine Bowles and former Senator Alan Simpson, the co-chairs of President Obama’s deficit commission, but that should not be a reason to misrepresent the report to readers. An article today referred to the report as “the report of the Simpson-Bowles deficit-reduction commission.”
Of course there was no report approved by the commission. According to the commission’s by-laws, a report would need the vote of 14 members to be approved. There was no report that received 14 votes, therefore there is no report from the commission. The Post is substituting its wishful thinking for the truth.
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