The headline of a front page Washington Post article warned readers:
“Recession imminent if ‘fiscal cliff’ of tax hikes, budget cuts not averted, CBO says.”
Nope, that is not true as all faithful BTP readers know.
The Congressional Budget Office (CBO) projections for a recession are not based on Congress taking action before January 1 when the tax increases and spending cuts first take effect. The CBO projections are based on the assumption that Congress never does anything to offset the scheduled increase in taxes and cuts in spending. If, for example, Congress and the President were to reach a deal that took effect January 15th or 30th, then the vast majority of the negative impact would be avoided. It is very misleading to imply that the CBO projection in some way hinged on having a deal in place by January 1.
At one point the article referred to: “the scheduled deep cut in military spending.” A real newspaper would write this as “the scheduled cut in military spending.”
The headline of a front page Washington Post article warned readers:
“Recession imminent if ‘fiscal cliff’ of tax hikes, budget cuts not averted, CBO says.”
Nope, that is not true as all faithful BTP readers know.
The Congressional Budget Office (CBO) projections for a recession are not based on Congress taking action before January 1 when the tax increases and spending cuts first take effect. The CBO projections are based on the assumption that Congress never does anything to offset the scheduled increase in taxes and cuts in spending. If, for example, Congress and the President were to reach a deal that took effect January 15th or 30th, then the vast majority of the negative impact would be avoided. It is very misleading to imply that the CBO projection in some way hinged on having a deal in place by January 1.
At one point the article referred to: “the scheduled deep cut in military spending.” A real newspaper would write this as “the scheduled cut in military spending.”
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The NYT did what newspapers are supposed to do, it analyzed the impact of the Medicare proposals of President Obama and Governor Romney. It charted out their differences and gave the opinions of some leading experts in the area.
This is important. Reporters should have the time to do this sort of investigation. The overwhelming majority of readers do not have time to evaluate the accuracy of competing claims, which is why the he said/she said reporting that has become standard is so offensive.
The NYT did what newspapers are supposed to do, it analyzed the impact of the Medicare proposals of President Obama and Governor Romney. It charted out their differences and gave the opinions of some leading experts in the area.
This is important. Reporters should have the time to do this sort of investigation. The overwhelming majority of readers do not have time to evaluate the accuracy of competing claims, which is why the he said/she said reporting that has become standard is so offensive.
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David Leonhardt’s latest blog post on increasing inequality is a discussion of globalization. It’s most reasonable except the underlying premise appears to be that globalization is something that just happened.
While this is a common theme in polite circles, it is ridiculous on its phase. Globalization has been by design. Ever hear of the WTO, NAFTA, CAFTA etc.? These are carefully hammered out deals that determine which sectors will exposed to more competition, which sectors will see increased protection (e.g. pharmaceuticals and Disney), and which sectors will largely be left alone.
It is not an accident that autoworkers and custodians have to face competition from people willing to work for very low wages from developing countries whereas doctors and lawyers are largely protected from this competition. This was by design. If the folks negotiating trade deals had put the same effort to open up competition in the currently high-paid professions as they did in manufactured goods, we would probably be paying our doctors $100k a year or less. And we would be saving hundreds of billions of dollars a year in health care costs, legal fees and other areas.
But, our trade negotiators were not trying to bring about economic gains at the expense of doctors and lawyers. These are people with whom they identify. They are also people who make large campaign contributions and who have friends and relatives who write news stories in major media outlets. So free trade in professional services was never a topic for trade negotiators. They remain largely protected from international competition and the people who write on economics pretend not to notice.
David Leonhardt’s latest blog post on increasing inequality is a discussion of globalization. It’s most reasonable except the underlying premise appears to be that globalization is something that just happened.
While this is a common theme in polite circles, it is ridiculous on its phase. Globalization has been by design. Ever hear of the WTO, NAFTA, CAFTA etc.? These are carefully hammered out deals that determine which sectors will exposed to more competition, which sectors will see increased protection (e.g. pharmaceuticals and Disney), and which sectors will largely be left alone.
It is not an accident that autoworkers and custodians have to face competition from people willing to work for very low wages from developing countries whereas doctors and lawyers are largely protected from this competition. This was by design. If the folks negotiating trade deals had put the same effort to open up competition in the currently high-paid professions as they did in manufactured goods, we would probably be paying our doctors $100k a year or less. And we would be saving hundreds of billions of dollars a year in health care costs, legal fees and other areas.
But, our trade negotiators were not trying to bring about economic gains at the expense of doctors and lawyers. These are people with whom they identify. They are also people who make large campaign contributions and who have friends and relatives who write news stories in major media outlets. So free trade in professional services was never a topic for trade negotiators. They remain largely protected from international competition and the people who write on economics pretend not to notice.
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The Congressional Budget Office came out with its mid-year budget update. The update included a warning that if the Bush tax cut and the payroll tax cut are both allowed to expire and the cuts from last year’s budget agreement take effect, the economy will sink into recession in 2013 and the unemployment rate will rise to 9.0 percent. The NYT immediately picked up on this warning in a news article on the new projections.
It is important to realize that this projection for a shrinking economy and rising unemployment rate is based on the higher taxes and lower spending remaining in place for a whole year. The failure of Congress and the president to agree to a package by January 1, 2013, by itself, would not lead to this sort of contraction.
If Congress and the president were to work an agreement somewhere in the month of January or even February, it would mean that people would be paying higher taxes for a short period of time. This reduction in disposable income, coupled with the cuts in spending scheduled to take place, would dampen growth. However, if an agreement reached early in the year restored part of the tax cuts and reversed some of the spending cuts, then the impact on the economy would be very limited.
The point is that January 1, 2013 is not a drop dead date. While it would be desirable to have an agreement on tax and spending issues before this date, and in fact as soon as possible, there will be little harm if negotiations continue into next year, as long as a deal is reached before we get too far into the new year.
If the deadline is allowed to pass then it is easy imagine that Congress approves a tax and spending package that prevents a large hit to the economy. If the experts’ assessment proves right and President Obama is re-elected, then it is easy to envision a scenario in which he proposes a tax cut to the new Congress that restores the Bush era rates (or something close to them) for the bottom 98 percent of the income distribution. He could even include a temporary further rate reduction to replace the payroll tax holiday. It would be difficult to envision even a Republican controlled Congress refusing to pass a tax cut for 98 percent of taxpayers, which will also be needed to provide a boost to the economy.
The increase in taxes on the wealthiest two percent would have only a modest impact on demand. Much of this money would have been saved otherwise, so the fact that government is pulling it away in taxes is not likely to have much negative effect on consumption.
On the spending side, the cuts of roughly $50 billion from both domestic discretionary and the military will have a negative impact on jobs and growth. It is worth noting in this respect that cuts to the domestic side will almost certainly lead to more job loss than cuts to the military budget. The latter tends to be more capital intensive, so fewer workers are employed per dollar of spending.
While these cuts in spending will clearly slow the economy, this is presumably what Congress wanted when it insisted on spending cuts last year. In other words, it is bad economic policy, but it seems to be the economic policy that Congress insisted on, so this portion of the “cliff” really should not be a surprise to anyone.
Finally, it is worth noting that many of the same people who claim that the stimulus did not create jobs are touting the risk to the economy from the fiscal cliff. It is pretty hard to imagine an economic theory where a cutback in spending leads to a loss of jobs, but an increase in spending doesn’t create jobs. In other words, anyone who believes that the stimulus did not create any jobs should not be concerned about the fiscal cliff. By their theory of the economy, it won’t have any impact.
The Congressional Budget Office came out with its mid-year budget update. The update included a warning that if the Bush tax cut and the payroll tax cut are both allowed to expire and the cuts from last year’s budget agreement take effect, the economy will sink into recession in 2013 and the unemployment rate will rise to 9.0 percent. The NYT immediately picked up on this warning in a news article on the new projections.
It is important to realize that this projection for a shrinking economy and rising unemployment rate is based on the higher taxes and lower spending remaining in place for a whole year. The failure of Congress and the president to agree to a package by January 1, 2013, by itself, would not lead to this sort of contraction.
If Congress and the president were to work an agreement somewhere in the month of January or even February, it would mean that people would be paying higher taxes for a short period of time. This reduction in disposable income, coupled with the cuts in spending scheduled to take place, would dampen growth. However, if an agreement reached early in the year restored part of the tax cuts and reversed some of the spending cuts, then the impact on the economy would be very limited.
The point is that January 1, 2013 is not a drop dead date. While it would be desirable to have an agreement on tax and spending issues before this date, and in fact as soon as possible, there will be little harm if negotiations continue into next year, as long as a deal is reached before we get too far into the new year.
If the deadline is allowed to pass then it is easy imagine that Congress approves a tax and spending package that prevents a large hit to the economy. If the experts’ assessment proves right and President Obama is re-elected, then it is easy to envision a scenario in which he proposes a tax cut to the new Congress that restores the Bush era rates (or something close to them) for the bottom 98 percent of the income distribution. He could even include a temporary further rate reduction to replace the payroll tax holiday. It would be difficult to envision even a Republican controlled Congress refusing to pass a tax cut for 98 percent of taxpayers, which will also be needed to provide a boost to the economy.
The increase in taxes on the wealthiest two percent would have only a modest impact on demand. Much of this money would have been saved otherwise, so the fact that government is pulling it away in taxes is not likely to have much negative effect on consumption.
On the spending side, the cuts of roughly $50 billion from both domestic discretionary and the military will have a negative impact on jobs and growth. It is worth noting in this respect that cuts to the domestic side will almost certainly lead to more job loss than cuts to the military budget. The latter tends to be more capital intensive, so fewer workers are employed per dollar of spending.
While these cuts in spending will clearly slow the economy, this is presumably what Congress wanted when it insisted on spending cuts last year. In other words, it is bad economic policy, but it seems to be the economic policy that Congress insisted on, so this portion of the “cliff” really should not be a surprise to anyone.
Finally, it is worth noting that many of the same people who claim that the stimulus did not create jobs are touting the risk to the economy from the fiscal cliff. It is pretty hard to imagine an economic theory where a cutback in spending leads to a loss of jobs, but an increase in spending doesn’t create jobs. In other words, anyone who believes that the stimulus did not create any jobs should not be concerned about the fiscal cliff. By their theory of the economy, it won’t have any impact.
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It’s hard to believe that progressive bloggers didn’t get together to pay Newsweek to run Niall Ferguson’s piece on Obama. The thing is so shot full of easily identifiable errors no serious publication would ever allow it into print. It already has been picked to pieces by Paul Krugman, Ezra Klein and Mark Thoma, among others.
My personal favorite was this little item picked up by Josh Holland. It seems that Ferguson can’t even get straight who he supported in 2008. In the latest piece he was a McCain backer who hoped for the best from the Obama administration. But back in 2008 he was an Obama supporter who had become disenchanted with McCain’s lack of understanding of economics. At that time Ferguson was ecstatic over the prospect of the first African American president in the White House.
Okay, but enough of the cheap fun, there is an issue here for which Ferguson needs a serious whacking. On page 2 Ferguson has a figure that shows the predicted and actual levels of unemployment for 2009 and 2012. (He has predicted unemployment for 2013, but I guess the fact checker pulled the bar showing “actual.”) Not surprisingly, the predicted unemployment rates are well below the actual. Therefore Ferguson seems convinced that he has done his job, Obama failed to deliver.
But Ferguson got the nature of the failure wrong. Obama and his economic team, like the rest of the economics profession, badly underestimated the severity of the downturn. Being world class economists it was too difficult for them to recognize something as simple as an $8 trillion housing bubble and to understand the damage that would be done by its deflation. They certainly deserve to be harangued for that, but unfortunately all of Ferguson’s friends would be equally guilty on this count.
Obama’s team was not wrong on the impact of their stimulus. They projected that the original package would generate 3-4 million jobs. (That’s in black and white as of January 2009, you can read it.) After it was whittled down by Ferguson’s deficit minded friends in Congress, the predicted effect was on the order of 2-3 million jobs. This is roughly the number that most independent analysts have estimated as well.
In short, we got a stimulus designed to create 2-3 million jobs in a context where we needed 10-12 million. We can and should blame the Obama team for a faulty economic forecast, but their policy did almost exactly what was expected. In short Obama did come through with what he promised, unfortunately when it came to jobs, he didn’t promise very much.
It’s hard to believe that progressive bloggers didn’t get together to pay Newsweek to run Niall Ferguson’s piece on Obama. The thing is so shot full of easily identifiable errors no serious publication would ever allow it into print. It already has been picked to pieces by Paul Krugman, Ezra Klein and Mark Thoma, among others.
My personal favorite was this little item picked up by Josh Holland. It seems that Ferguson can’t even get straight who he supported in 2008. In the latest piece he was a McCain backer who hoped for the best from the Obama administration. But back in 2008 he was an Obama supporter who had become disenchanted with McCain’s lack of understanding of economics. At that time Ferguson was ecstatic over the prospect of the first African American president in the White House.
Okay, but enough of the cheap fun, there is an issue here for which Ferguson needs a serious whacking. On page 2 Ferguson has a figure that shows the predicted and actual levels of unemployment for 2009 and 2012. (He has predicted unemployment for 2013, but I guess the fact checker pulled the bar showing “actual.”) Not surprisingly, the predicted unemployment rates are well below the actual. Therefore Ferguson seems convinced that he has done his job, Obama failed to deliver.
But Ferguson got the nature of the failure wrong. Obama and his economic team, like the rest of the economics profession, badly underestimated the severity of the downturn. Being world class economists it was too difficult for them to recognize something as simple as an $8 trillion housing bubble and to understand the damage that would be done by its deflation. They certainly deserve to be harangued for that, but unfortunately all of Ferguson’s friends would be equally guilty on this count.
Obama’s team was not wrong on the impact of their stimulus. They projected that the original package would generate 3-4 million jobs. (That’s in black and white as of January 2009, you can read it.) After it was whittled down by Ferguson’s deficit minded friends in Congress, the predicted effect was on the order of 2-3 million jobs. This is roughly the number that most independent analysts have estimated as well.
In short, we got a stimulus designed to create 2-3 million jobs in a context where we needed 10-12 million. We can and should blame the Obama team for a faulty economic forecast, but their policy did almost exactly what was expected. In short Obama did come through with what he promised, unfortunately when it came to jobs, he didn’t promise very much.
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Robert Samuelson devotes his column today to misrepresenting a new article in the Journal of the American Medical Association, claiming that it shows the Ryan-Romney Medicare plan would save money. In fact, the article compares costs of Medicare Advantage plans with the current traditional Medicare plan. It notes that in many cases the former are lower, however it does not attribute the savings to the more efficient delivery of care. It notes that lower costs may be due to healthier patients, which has been the finding of other research, such this study by Kaiser via Jared Bernstein.
Source: Kaiser Family Foundation.
There is nothing in the new study that should lead Samuelson’s readers to believe that the Ryan-Romney plan will save money.
Interestingly, Samuelson makes the standard conservative argument that the use of private insurers to provide the Medicare drug benefit was the reason that the cost has been far below projections, holding this up as an example for the larger program. In fact the main reason that costs have been far lower than had been projected was that drug costs in general have risen far less rapidly than had been projected. The reason for the slower than projected increase in drug costs has been a reduced pace of new drug development.
The Food and Drug Administration rates new drugs as “priority” reviews or “standard” reviews depending on whether the drug is potentially a qualitative breakthrough over existing drugs. While it might be expected that the number of priority drug approvals would increase through time due to the increase in the money that the industry claims to be spending on research, it actually has fallen sharply in the years since the Medicare drug benefit was approved. While it is unlikely that the decision to use private insurers to provide the Medicare drug benefit is the reason for this slowdown in innovation, Samuelson has at least a prima facie case if that is what he wants to argue.
Source: FDA and Knowledge Ecology International.
Of course it is possible for the government to save money by introducing choice into Medicare. It could allow beneficiaries to buy into more efficient health care systems elsewhere in the world and split the savings. Based on current cost projections, in a couple of decades this plan could have the government and beneficiaries splitting tens of thousands of dollars a year in annual savings. Unfortunately Samuelson, like most proponents of vouchers, is too hard core protectionist to consider this sort of plan.
Robert Samuelson devotes his column today to misrepresenting a new article in the Journal of the American Medical Association, claiming that it shows the Ryan-Romney Medicare plan would save money. In fact, the article compares costs of Medicare Advantage plans with the current traditional Medicare plan. It notes that in many cases the former are lower, however it does not attribute the savings to the more efficient delivery of care. It notes that lower costs may be due to healthier patients, which has been the finding of other research, such this study by Kaiser via Jared Bernstein.
Source: Kaiser Family Foundation.
There is nothing in the new study that should lead Samuelson’s readers to believe that the Ryan-Romney plan will save money.
Interestingly, Samuelson makes the standard conservative argument that the use of private insurers to provide the Medicare drug benefit was the reason that the cost has been far below projections, holding this up as an example for the larger program. In fact the main reason that costs have been far lower than had been projected was that drug costs in general have risen far less rapidly than had been projected. The reason for the slower than projected increase in drug costs has been a reduced pace of new drug development.
The Food and Drug Administration rates new drugs as “priority” reviews or “standard” reviews depending on whether the drug is potentially a qualitative breakthrough over existing drugs. While it might be expected that the number of priority drug approvals would increase through time due to the increase in the money that the industry claims to be spending on research, it actually has fallen sharply in the years since the Medicare drug benefit was approved. While it is unlikely that the decision to use private insurers to provide the Medicare drug benefit is the reason for this slowdown in innovation, Samuelson has at least a prima facie case if that is what he wants to argue.
Source: FDA and Knowledge Ecology International.
Of course it is possible for the government to save money by introducing choice into Medicare. It could allow beneficiaries to buy into more efficient health care systems elsewhere in the world and split the savings. Based on current cost projections, in a couple of decades this plan could have the government and beneficiaries splitting tens of thousands of dollars a year in annual savings. Unfortunately Samuelson, like most proponents of vouchers, is too hard core protectionist to consider this sort of plan.
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The NYT did a classic he said/she said on the debate between the presidential candidates over Medicare. While such coverage is easy for reporters it is not very helpful to readers who generally have less time than reporters to determine the truth of specific claims.
For example, it might have been helpful to point out to readers that the Romney-Ryan budget assumes $716 billion in unspecified cuts to Medicare over the next decade. These mystery cuts are due to the fact that they have promised to repeal the Affordable Care Act (ACA) and thereby get rid of the projected Medicare savings for which it provides. Nonetheless, the budget assumes that Medicare would cost the same as President Obama had projected with these cuts.
This means that Romney and Ryan must envision other cuts to the program over this period that they have yet to specify. That would have been useful information to provide readers.
Correction: A new blogpost from the Romney campaign indicates that, unlike the Ryan budget, he does not assume $716 billion in Medicare savings from the ACA. He would repeal the act and then start with a projected spending level that is $716 billion higher over the next decade than President Obama’s budget. Thanks to Robert Salzberg for catching this one.
The NYT did a classic he said/she said on the debate between the presidential candidates over Medicare. While such coverage is easy for reporters it is not very helpful to readers who generally have less time than reporters to determine the truth of specific claims.
For example, it might have been helpful to point out to readers that the Romney-Ryan budget assumes $716 billion in unspecified cuts to Medicare over the next decade. These mystery cuts are due to the fact that they have promised to repeal the Affordable Care Act (ACA) and thereby get rid of the projected Medicare savings for which it provides. Nonetheless, the budget assumes that Medicare would cost the same as President Obama had projected with these cuts.
This means that Romney and Ryan must envision other cuts to the program over this period that they have yet to specify. That would have been useful information to provide readers.
Correction: A new blogpost from the Romney campaign indicates that, unlike the Ryan budget, he does not assume $716 billion in Medicare savings from the ACA. He would repeal the act and then start with a projected spending level that is $716 billion higher over the next decade than President Obama’s budget. Thanks to Robert Salzberg for catching this one.
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Take the poll and add your two cents. Here’s mine:
How about limited global competition? There are plenty of smart people in China and India who could train to U.S. standards and would be delighted to work as doctors or lawyers in the U.S. at $100k a year. That would reduce inequality.
How about a change in norms among corporate board members who essentially get paid off to let the CEOs pilfer the company? It’s their job to restrain CEO pay. They don’t do it.
How about stronger patent and copyright protection. We spend $300 billion a year on prescription drugs that would sell for $30 billion in a free market. Those patent rents don’t go to people in the bottom 99 percent for the most part.
Deregulation is far too generous a term for the financial industry? If they had actual deregulation, meaning a lack of government involvement, most of Wall Street would be bankrupt right now. In fact, they have too-big-to-fail insurance which is provided free by the taxpayers.
Inequality is not something that just happened. Inequality was engineered by the folks who have power.
Take the poll and add your two cents. Here’s mine:
How about limited global competition? There are plenty of smart people in China and India who could train to U.S. standards and would be delighted to work as doctors or lawyers in the U.S. at $100k a year. That would reduce inequality.
How about a change in norms among corporate board members who essentially get paid off to let the CEOs pilfer the company? It’s their job to restrain CEO pay. They don’t do it.
How about stronger patent and copyright protection. We spend $300 billion a year on prescription drugs that would sell for $30 billion in a free market. Those patent rents don’t go to people in the bottom 99 percent for the most part.
Deregulation is far too generous a term for the financial industry? If they had actual deregulation, meaning a lack of government involvement, most of Wall Street would be bankrupt right now. In fact, they have too-big-to-fail insurance which is provided free by the taxpayers.
Inequality is not something that just happened. Inequality was engineered by the folks who have power.
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