The first sentence a Washington Post article told readers:
“American manufacturing unexpectedly contracted in July for a second month, reflecting a drop in orders that threatens to undercut a mainstay of the recovery.”
As the article then explains, this statement is referring to an index from the Institute for Supply Management which showed a reading of 49.8 percent in July. A reading of less than 50 is associated with contraction in the sector.
However this is a broad index that assesses many factors, including orders and hiring. It does not directly measure factory output. We do have such a measure from the Federal Reserve Board. While the numbers for industrial production are not yet available for July, the Fed’s index showed manufacturing output increasing by 0.7 percent in June (following a comparable decline in May). This means that if manufacturing output does fall in July, it will be the first month, not the second.
The first sentence a Washington Post article told readers:
“American manufacturing unexpectedly contracted in July for a second month, reflecting a drop in orders that threatens to undercut a mainstay of the recovery.”
As the article then explains, this statement is referring to an index from the Institute for Supply Management which showed a reading of 49.8 percent in July. A reading of less than 50 is associated with contraction in the sector.
However this is a broad index that assesses many factors, including orders and hiring. It does not directly measure factory output. We do have such a measure from the Federal Reserve Board. While the numbers for industrial production are not yet available for July, the Fed’s index showed manufacturing output increasing by 0.7 percent in June (following a comparable decline in May). This means that if manufacturing output does fall in July, it will be the first month, not the second.
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Sorry boys and girls, this is not a debatable issue. It is easy to identify the countries in Europe that have the most generous welfare states. They would be the Nordic countries like Denmark, Sweden, Norway, and Finland. Also high on the list would be the Netherlands, Germany, France and Austria. No one has Greece, Spain, Italy, or even Ireland on the list of countries with the most generous welfare states.
This means that conservatives would be mistaken if they blame the euro crisis on overly generous welfare state. Unfortunately the NYT did not point this fact out to reader in an article about Governor Romney’s summer travels.
At one point the article said:
“That Europe [the one with an extensive welfare state], which some conservatives label the “old Europe,” is symbolized by the troubles of the euro zone, where heavy regulation and a vast social welfare network, they maintain, has led to an intractable economic crisis.”
Since most readers probably would not know that debt crisis has been confined to the countries with the least generous welfare states, it would have been useful if the NYT had called readers attention to this fact.
Sorry boys and girls, this is not a debatable issue. It is easy to identify the countries in Europe that have the most generous welfare states. They would be the Nordic countries like Denmark, Sweden, Norway, and Finland. Also high on the list would be the Netherlands, Germany, France and Austria. No one has Greece, Spain, Italy, or even Ireland on the list of countries with the most generous welfare states.
This means that conservatives would be mistaken if they blame the euro crisis on overly generous welfare state. Unfortunately the NYT did not point this fact out to reader in an article about Governor Romney’s summer travels.
At one point the article said:
“That Europe [the one with an extensive welfare state], which some conservatives label the “old Europe,” is symbolized by the troubles of the euro zone, where heavy regulation and a vast social welfare network, they maintain, has led to an intractable economic crisis.”
Since most readers probably would not know that debt crisis has been confined to the countries with the least generous welfare states, it would have been useful if the NYT had called readers attention to this fact.
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The NYT had a truly bizarre piece that at least implicitly portrayed Japan unfavorably compared with the United States for having an over-valued currency. The second paragraph tells readers:
“In an echo of a debate that raged in the United States in the 1980s, the government faces growing criticism for doing almost nothing to rein in the yen, despite alarm that the record-high currency is dealing crippling blows to the country’s once all-important export machine.”
The article then goes on to tell readers that Japan’s large number of retirees benefit from a high yen, which means cheap imports. However the high yen hurts young people by making manufacturing less competitive, and thereby reducing employment.
The reason that this piece is so bizarre is that these criticisms would be much more obviously directed at the United States than Japan. The United States has an 8.2 percent unemployment rate. Japan’s unemployment rate is 4.3 percent. Japan has a current account surplus of more than 2.0 percent of GDP; the United States has a deficit of close to 4.0 percent of GDP. If there is a country that could obviously benefit from a lower valued currency it would seem to be the United States.
Remarkably, while the value of the currency is apparently a hotly debated issue in Japan (at least according to the NYT), it is rarely mentioned in the United States. This could be due to the fact that more powerful interests than retired workers support an over-valued dollar in the United States.
The financial sector typically supports an over-valued currency since it reduces the risk of inflation and it makes them bigger actors overseas. Also, major retailers like Wal-Mart have established extensive supply networks overseas that rely on being able to buy goods cheaply. Most major manufacturers have also established subsidiaries in China and other countries with low wages.
These powerful interest groups would strongly resist any effort to lower the value of the dollar and thereby make U.S. goods more competitive in world markets. This could explain why the value of the currency is debated in Japan, while the NYT tells us that it is only a matter of historical concern (the 1980s) in the United States.
One fun tidbit in this piece is that it tells us that in the midst of the crisis, Japan became a “haven for investors”:
“After the crisis began, raising doubts about the soundness of American and European banks and the ability of governments to stand behind them, the tide of money reversed. Japan, with its huge security cushion of domestic savers, suddenly became a haven for investors, driving the yen up.”
That’s right, a country with a debt to GDP ratio of more than 230 percent is a haven for investors. Doesn’t that make you worry about those big deficits that Obama is running up?
The NYT had a truly bizarre piece that at least implicitly portrayed Japan unfavorably compared with the United States for having an over-valued currency. The second paragraph tells readers:
“In an echo of a debate that raged in the United States in the 1980s, the government faces growing criticism for doing almost nothing to rein in the yen, despite alarm that the record-high currency is dealing crippling blows to the country’s once all-important export machine.”
The article then goes on to tell readers that Japan’s large number of retirees benefit from a high yen, which means cheap imports. However the high yen hurts young people by making manufacturing less competitive, and thereby reducing employment.
The reason that this piece is so bizarre is that these criticisms would be much more obviously directed at the United States than Japan. The United States has an 8.2 percent unemployment rate. Japan’s unemployment rate is 4.3 percent. Japan has a current account surplus of more than 2.0 percent of GDP; the United States has a deficit of close to 4.0 percent of GDP. If there is a country that could obviously benefit from a lower valued currency it would seem to be the United States.
Remarkably, while the value of the currency is apparently a hotly debated issue in Japan (at least according to the NYT), it is rarely mentioned in the United States. This could be due to the fact that more powerful interests than retired workers support an over-valued dollar in the United States.
The financial sector typically supports an over-valued currency since it reduces the risk of inflation and it makes them bigger actors overseas. Also, major retailers like Wal-Mart have established extensive supply networks overseas that rely on being able to buy goods cheaply. Most major manufacturers have also established subsidiaries in China and other countries with low wages.
These powerful interest groups would strongly resist any effort to lower the value of the dollar and thereby make U.S. goods more competitive in world markets. This could explain why the value of the currency is debated in Japan, while the NYT tells us that it is only a matter of historical concern (the 1980s) in the United States.
One fun tidbit in this piece is that it tells us that in the midst of the crisis, Japan became a “haven for investors”:
“After the crisis began, raising doubts about the soundness of American and European banks and the ability of governments to stand behind them, the tide of money reversed. Japan, with its huge security cushion of domestic savers, suddenly became a haven for investors, driving the yen up.”
That’s right, a country with a debt to GDP ratio of more than 230 percent is a haven for investors. Doesn’t that make you worry about those big deficits that Obama is running up?
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I’m serious. The Washington Post columnist notes the Americans With Disability Act, which prohibits employers from discriminating against workers because they have a disability, then complains about the paradox that the Social Security disability program gives money to people with disabilities who can’t work. I don’t really see the paradox in trying to make it easier for people with disabilities to find jobs while still supporting those whose disabilities don’t allow them to work, but maybe that’s why I don’t write for the WAPO.
Anyhow, Lane goes on to note that the disability payments have doubled as a share of GDP over the last three decades, then asks, “what’s going on?” He tells readers:
“There’s no evidence that workers in general are substantially less healthy than they used to be.”
Umm, actually that is not true. The workforce has aged substantially in the last three decades. In the 1980, the huge baby boom cohort was in their 20s and early 30s, today they are in their 50s and 60s. Workers in their 50s and 60s are far more likely to have disabilities that keep them from working than workers in their 20s and 30s. Even Lane himself notes the aging of the workforce later in the piece.
There is also the paradox (there’s that word again) that improvements in health care can increase disability rates. Suppose a worker has a disease like AIDS or cancer. Improvements in treatment can keep this worker alive much longer, but may not allow them to go back to work.
There are also other factors that would increase disability rolls that have nothing to do with more freeloaders, most importantly the increase in the percentage of women who have worked long enough to be eligible for disability. According to the Congressional Budget Office the percentage of the working age population eligible for disability increased from 62 percent in 1970 to 75 percent in 2009.
As this report also notes, disability rolls tend to increase in economic downturns. This is the point that seems to concern Lane, that many workers turn to disability when their unemployment benefits run out.
While Lane sees something pernicious in this story, with the disabled pocketing checks that average a bit more than $1,100 a month at the expense of the rest of us (and also getting Medicare after two years), there is another way to view this picture. Many people with various types of physical and psychological problems work.
It is likely the case that these disabilities do reduce their productivity on the job. When employers are looking to cut back their work force, they may be more likely to lay off a worker whose bad back makes them slower than other workers or a person with fits of depression that prevent them from functioning for periods of time. Much of the answer in this story would seem to be that if we keep the economy operating at high levels of employment there will be job opportunities for these workers. That would bring us back to our friend stimulus, but Lane and the Washington Post don’t like to talk about such things. (It’s all so complicated, we just can’t know if it works.)
Anyhow, we certainly can do better in making it easier for workers to leave disability and get back in the workforce. There also are freeloaders on the program who should be working. But all the evidence suggests that the bulk of the rise in disability is due to changes in the health of the workforce and the economy, not a sudden proliferation of freeloaders.
[Addendum: Charles Lane didn’t address this issue, but since it has come up in comments and elsewhere, disability payments actually increased more rapidly under President Bush (the second) than under President Obama. This means that if we want to point fingers at a president pandering to freeloaders, our target should be the last occupant of the White House, not the current one.]
I’m serious. The Washington Post columnist notes the Americans With Disability Act, which prohibits employers from discriminating against workers because they have a disability, then complains about the paradox that the Social Security disability program gives money to people with disabilities who can’t work. I don’t really see the paradox in trying to make it easier for people with disabilities to find jobs while still supporting those whose disabilities don’t allow them to work, but maybe that’s why I don’t write for the WAPO.
Anyhow, Lane goes on to note that the disability payments have doubled as a share of GDP over the last three decades, then asks, “what’s going on?” He tells readers:
“There’s no evidence that workers in general are substantially less healthy than they used to be.”
Umm, actually that is not true. The workforce has aged substantially in the last three decades. In the 1980, the huge baby boom cohort was in their 20s and early 30s, today they are in their 50s and 60s. Workers in their 50s and 60s are far more likely to have disabilities that keep them from working than workers in their 20s and 30s. Even Lane himself notes the aging of the workforce later in the piece.
There is also the paradox (there’s that word again) that improvements in health care can increase disability rates. Suppose a worker has a disease like AIDS or cancer. Improvements in treatment can keep this worker alive much longer, but may not allow them to go back to work.
There are also other factors that would increase disability rolls that have nothing to do with more freeloaders, most importantly the increase in the percentage of women who have worked long enough to be eligible for disability. According to the Congressional Budget Office the percentage of the working age population eligible for disability increased from 62 percent in 1970 to 75 percent in 2009.
As this report also notes, disability rolls tend to increase in economic downturns. This is the point that seems to concern Lane, that many workers turn to disability when their unemployment benefits run out.
While Lane sees something pernicious in this story, with the disabled pocketing checks that average a bit more than $1,100 a month at the expense of the rest of us (and also getting Medicare after two years), there is another way to view this picture. Many people with various types of physical and psychological problems work.
It is likely the case that these disabilities do reduce their productivity on the job. When employers are looking to cut back their work force, they may be more likely to lay off a worker whose bad back makes them slower than other workers or a person with fits of depression that prevent them from functioning for periods of time. Much of the answer in this story would seem to be that if we keep the economy operating at high levels of employment there will be job opportunities for these workers. That would bring us back to our friend stimulus, but Lane and the Washington Post don’t like to talk about such things. (It’s all so complicated, we just can’t know if it works.)
Anyhow, we certainly can do better in making it easier for workers to leave disability and get back in the workforce. There also are freeloaders on the program who should be working. But all the evidence suggests that the bulk of the rise in disability is due to changes in the health of the workforce and the economy, not a sudden proliferation of freeloaders.
[Addendum: Charles Lane didn’t address this issue, but since it has come up in comments and elsewhere, disability payments actually increased more rapidly under President Bush (the second) than under President Obama. This means that if we want to point fingers at a president pandering to freeloaders, our target should be the last occupant of the White House, not the current one.]
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In an interview with Senator Tom Harkin (sorry, no link yet), Morning Edition host Renee Montagne managed to turn reality on its head. She repeatedly referred to restrictions on the type of schools where students could use government loans and Pell grants as interfering with the free market and imposing restrictions on the industry.
This is truly bizarre. Free market purists presumably would not want the government program at all. However, those who support the program would presumably want to ensure that money goes for its intended purpose, educating students and providing them with marketable skills.
Prohibiting students from using their government support at diploma mills that do not do either would be like prohibiting people from using food stamps to buy whiskey at their local liquor store. Few would describe such a restriction as interfering with the free market or government regulation of the liquor store industry.
In the case of liquor stores, they can sell liquor to whoever they want (above legal age), their customers just can’t use food stamps for their alcohol purchases. Similarly, for profit colleges can sign up any student they want, these rules just prohibit students from using government support at these schools unless they have a track record of actually providing an education.
[Addendum: The NYT commits the same sin. It told readers:
“Many Republicans see such colleges [for profit colleges] as a healthy free-market alternative to overcrowded community colleges, offering useful vocational training and education to working adults who will not attend more traditional institutions.”
Of course the NYT has no idea how the Republicans “see” these colleges, they only know what they say about these colleges. It is entirely possible that many Republicans see these colleges as sleaze bucket outfits that give them large campaign contributions. If this is the case, they might be inclined to speak positively about not for profit colleges regardless of what they actually think about them.
Remember, reporters are not mindreaders, and those that claim to be are not reporters.
In an interview with Senator Tom Harkin (sorry, no link yet), Morning Edition host Renee Montagne managed to turn reality on its head. She repeatedly referred to restrictions on the type of schools where students could use government loans and Pell grants as interfering with the free market and imposing restrictions on the industry.
This is truly bizarre. Free market purists presumably would not want the government program at all. However, those who support the program would presumably want to ensure that money goes for its intended purpose, educating students and providing them with marketable skills.
Prohibiting students from using their government support at diploma mills that do not do either would be like prohibiting people from using food stamps to buy whiskey at their local liquor store. Few would describe such a restriction as interfering with the free market or government regulation of the liquor store industry.
In the case of liquor stores, they can sell liquor to whoever they want (above legal age), their customers just can’t use food stamps for their alcohol purchases. Similarly, for profit colleges can sign up any student they want, these rules just prohibit students from using government support at these schools unless they have a track record of actually providing an education.
[Addendum: The NYT commits the same sin. It told readers:
“Many Republicans see such colleges [for profit colleges] as a healthy free-market alternative to overcrowded community colleges, offering useful vocational training and education to working adults who will not attend more traditional institutions.”
Of course the NYT has no idea how the Republicans “see” these colleges, they only know what they say about these colleges. It is entirely possible that many Republicans see these colleges as sleaze bucket outfits that give them large campaign contributions. If this is the case, they might be inclined to speak positively about not for profit colleges regardless of what they actually think about them.
Remember, reporters are not mindreaders, and those that claim to be are not reporters.
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The effort by the rich to take away Social Security keeps building momentum. Today Bill Keller urges his fellow baby boomers:
“FELLOW boomers, we have done more than our share to make this mess. It’s not our fault that there are a lot of us, but we have resisted any move to fix the system. We should make a sensible reform of entitlements our generation’s cause. We should stiffen the spines of our politicians, and push lobby groups like A.A.R.P. to climb out of the bunker and lead.”
“Lead” in this context means supporting cuts to Social Security and Medicare. That is really brave for Mr. Keller to stand up and call for sacrifice from his age cohort. Does Keller know that the typical near retiree has total wealth of $170,000. This includes everything in their 401(k), all their other financial assets and the equity in their homes. Another way to put this is that the typical near retiree (between the ages of 55-64) could take all their wealth and pay off their mortgage. After that they would be entirely dependent on their Social Security to cover all their living costs.
Does this situation describe Mr. Keller’s finances? My guess is that it doesn’t. If that is true, how does Keller claim to speak for people who are in a hugely different financial situation than him? Is he really that ignorant of the issues that the NYT gives him a column to write about or is he dishonest? Readers will have to debate that in the months and years ahead.
This is not the only place in the piece where Keller lets ignorance and/or dishonesty get the better of him. At one point he calls for a change in the indexation formula for Social Security’s cost of living adjustment that would be the equivalent of a 3.0 percent across the board cut in benefits. (We know, got to do something about those high living seniors.)
Keller describes this 3.0 percent cut in Social Security benefits as:
“They also include technical fixes like aligning the automatic cost-of-living formula with reality.”
Is that right? Has Keller studied the cost-of-living for the elderly? Did he evaluate the Bureau of Labor Statistics elderly index, which generally shows that senior citizens experience a higher rate of inflation than the index used for making the annual cost of living adjustment for Social Security.
If he did, he shows zero evidence of this fact in his piece. It sure sounds like he is just repeating pablum that passed for wisdom in Washington elite circles, but rightly gets ridiculed everywhere else.
While Keller appeals to arithmetic it is not on his side. The arithmetic says that we have no problem affording the projected increase in retirees, just as we were able to afford a sharp reduction in the ratio of workers or retirees over the last decade.
The problems result from the fact that we have a broken health care system that causes us to pay more than twice as much per person for our health care as people in other wealthy country. But fixing the health care system would likely mean lower payments to insurers, hospitals, drug companies and doctors.
The other problem is the sharp upward redistribution of income over the last three decades. This has meant less money for middle income families and also less money for programs like Social Security and Medicare.
These problems can be fixed but that would require Mr. Keller to appeal to his fellow one percenters, not his fellow baby boomers. He probably doesn’t have the courage or integrity to do that.
The effort by the rich to take away Social Security keeps building momentum. Today Bill Keller urges his fellow baby boomers:
“FELLOW boomers, we have done more than our share to make this mess. It’s not our fault that there are a lot of us, but we have resisted any move to fix the system. We should make a sensible reform of entitlements our generation’s cause. We should stiffen the spines of our politicians, and push lobby groups like A.A.R.P. to climb out of the bunker and lead.”
“Lead” in this context means supporting cuts to Social Security and Medicare. That is really brave for Mr. Keller to stand up and call for sacrifice from his age cohort. Does Keller know that the typical near retiree has total wealth of $170,000. This includes everything in their 401(k), all their other financial assets and the equity in their homes. Another way to put this is that the typical near retiree (between the ages of 55-64) could take all their wealth and pay off their mortgage. After that they would be entirely dependent on their Social Security to cover all their living costs.
Does this situation describe Mr. Keller’s finances? My guess is that it doesn’t. If that is true, how does Keller claim to speak for people who are in a hugely different financial situation than him? Is he really that ignorant of the issues that the NYT gives him a column to write about or is he dishonest? Readers will have to debate that in the months and years ahead.
This is not the only place in the piece where Keller lets ignorance and/or dishonesty get the better of him. At one point he calls for a change in the indexation formula for Social Security’s cost of living adjustment that would be the equivalent of a 3.0 percent across the board cut in benefits. (We know, got to do something about those high living seniors.)
Keller describes this 3.0 percent cut in Social Security benefits as:
“They also include technical fixes like aligning the automatic cost-of-living formula with reality.”
Is that right? Has Keller studied the cost-of-living for the elderly? Did he evaluate the Bureau of Labor Statistics elderly index, which generally shows that senior citizens experience a higher rate of inflation than the index used for making the annual cost of living adjustment for Social Security.
If he did, he shows zero evidence of this fact in his piece. It sure sounds like he is just repeating pablum that passed for wisdom in Washington elite circles, but rightly gets ridiculed everywhere else.
While Keller appeals to arithmetic it is not on his side. The arithmetic says that we have no problem affording the projected increase in retirees, just as we were able to afford a sharp reduction in the ratio of workers or retirees over the last decade.
The problems result from the fact that we have a broken health care system that causes us to pay more than twice as much per person for our health care as people in other wealthy country. But fixing the health care system would likely mean lower payments to insurers, hospitals, drug companies and doctors.
The other problem is the sharp upward redistribution of income over the last three decades. This has meant less money for middle income families and also less money for programs like Social Security and Medicare.
These problems can be fixed but that would require Mr. Keller to appeal to his fellow one percenters, not his fellow baby boomers. He probably doesn’t have the courage or integrity to do that.
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Robert Samuelson looks to fear and uncertainty as the reasons that the economy is not doing better. He would be better off looking to national income accounting.
The basic story is that we have a big gap in demand that can only be filled in the short-term by government spending. The reason is simple. The housing bubble was driving around $1.2 trillion in demand that disappeared with the collapse of the bubble.
Roughly half of the falloff in demand was in residential construction. We had a huge building boom in the bubble years which went bust when builders realized that we had an enormous oversupply of housing.
Around $500 billion is from lower consumption. In the bubble years homeowners were spending based on the wealth in their home. That wealth has now disappeared. Therefore they have cut back spending. Why should we be surprised?
We also lost another $150 billion a year or so in demand when the bubble in the non-residential real estate collapsed. Also cutbacks in state and local spending as a result of a loss of tax revenue also contributed to the drop in demand.
So why is Samuelson looking for an explanation for inadequate demand to restore full employment? Where exactly would he expect this demand to come from?
Measured as a share of GDP, equipment and software spending is already back to its pre-recession level. This is actually quite impressive given the large amounts of excess capacity in many sectors of the economy. While consumption is down from its bubble peaks, the saving rate is still well below the post-war average, suggesting that consumers are spending a surprisingly high amount.
So where would Samuelson expect to see additional demand come from? In the longer term the gap in demand will presumably be filled by a reduction in the trade deficit spurred by a decline in the value of the dollar. Or at least that is what would happen if our system of exchange rates was working as it is supposed to. We will also see an increase in demand from construction as the oversupply of housing begins to be absorbed.
But in the short-run there is no alternative to having the government sector fill the demand gap. This is something that arithmetic fans everywhere recognize.
Robert Samuelson looks to fear and uncertainty as the reasons that the economy is not doing better. He would be better off looking to national income accounting.
The basic story is that we have a big gap in demand that can only be filled in the short-term by government spending. The reason is simple. The housing bubble was driving around $1.2 trillion in demand that disappeared with the collapse of the bubble.
Roughly half of the falloff in demand was in residential construction. We had a huge building boom in the bubble years which went bust when builders realized that we had an enormous oversupply of housing.
Around $500 billion is from lower consumption. In the bubble years homeowners were spending based on the wealth in their home. That wealth has now disappeared. Therefore they have cut back spending. Why should we be surprised?
We also lost another $150 billion a year or so in demand when the bubble in the non-residential real estate collapsed. Also cutbacks in state and local spending as a result of a loss of tax revenue also contributed to the drop in demand.
So why is Samuelson looking for an explanation for inadequate demand to restore full employment? Where exactly would he expect this demand to come from?
Measured as a share of GDP, equipment and software spending is already back to its pre-recession level. This is actually quite impressive given the large amounts of excess capacity in many sectors of the economy. While consumption is down from its bubble peaks, the saving rate is still well below the post-war average, suggesting that consumers are spending a surprisingly high amount.
So where would Samuelson expect to see additional demand come from? In the longer term the gap in demand will presumably be filled by a reduction in the trade deficit spurred by a decline in the value of the dollar. Or at least that is what would happen if our system of exchange rates was working as it is supposed to. We will also see an increase in demand from construction as the oversupply of housing begins to be absorbed.
But in the short-run there is no alternative to having the government sector fill the demand gap. This is something that arithmetic fans everywhere recognize.
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NPR seems to want listeners to ignore the economic downturn, by far the largest cause of the deficit, and to focus on cutting spending programs and raising everyone’s taxes. That was certainly the theme of its interview with David Wessel, an economics reporter with the Wall Street Journal, which discussed his new book, Red Ink.
The first sentence of the piece refers to the “ballooning deficit.” In fact the deficit is actually shrinking. While NPR can argue that the deficit is larger than it would like it to be, the direction of change is wrong. It cannot accurately be described as “ballooning.”
The piece included Wessel’s unchallenged assertion that the deficit probably cannot be closed without cutting spending and raising taxes across the board. It would have been helpful to note that the deficit is projected to get to a level that is almost consistent with a stable debt to GDP ratio if the economy were simply to get back to full employment. If health care costs were contained by reducing protectionism in the sector and a tax was imposed on financial speculation, the deficit would be at a sustainable level.
The segment also included the bizarre claim that there is widespread resentment against low and moderate income people who do not pay income taxes. It would be interesting if it presented evidence that supported this view. It is undoubtedly true that many people resent millionaires who use tax shelters in order to pay very low taxes, it is not clear that there is widespread anger over the fact that families earning $20,000-$30,000 a year are not paying income taxes (they do pay payroll taxes).
NPR seems to want listeners to ignore the economic downturn, by far the largest cause of the deficit, and to focus on cutting spending programs and raising everyone’s taxes. That was certainly the theme of its interview with David Wessel, an economics reporter with the Wall Street Journal, which discussed his new book, Red Ink.
The first sentence of the piece refers to the “ballooning deficit.” In fact the deficit is actually shrinking. While NPR can argue that the deficit is larger than it would like it to be, the direction of change is wrong. It cannot accurately be described as “ballooning.”
The piece included Wessel’s unchallenged assertion that the deficit probably cannot be closed without cutting spending and raising taxes across the board. It would have been helpful to note that the deficit is projected to get to a level that is almost consistent with a stable debt to GDP ratio if the economy were simply to get back to full employment. If health care costs were contained by reducing protectionism in the sector and a tax was imposed on financial speculation, the deficit would be at a sustainable level.
The segment also included the bizarre claim that there is widespread resentment against low and moderate income people who do not pay income taxes. It would be interesting if it presented evidence that supported this view. It is undoubtedly true that many people resent millionaires who use tax shelters in order to pay very low taxes, it is not clear that there is widespread anger over the fact that families earning $20,000-$30,000 a year are not paying income taxes (they do pay payroll taxes).
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While many of us learned arithmetic in third grade, apparently there are not enough people who retained this knowledge for the NYT to staff its opinion page. Hence they have Thomas Friedman warning us that the retirement of the baby boom cohort is going to devastate the country.
Now, if Friedman could do arithmetic he could turn to the Social Security trustees report and see that they project the ratio of workers to retirees to fall from 2.8 in 2012 to 2.0 in 2035. Is that scary?
Here’s where Mr. Arithmetic can help us. Let’s assume that retirees on average consume 75 percent as much as the working age population. That’s not their Social Security benefit (SS benefits are less than 40 percent of the average wage), this is their total consumption. Remember, they don’t have to travel to and from work every day, they don’t need to arrange child care, or incur other work related expenses.
If workers are taxed or in some other way have their consumption reduced to support retirees, then they currently get to keep 78.9 percent of what they make. The rising number of retirees will reduce this to 72.7 percent by 2035. This means that if nothing else changes workers would see a 7.8 percent decline in their take home pay as a result of this demographic change.
Fortunately, something else will change. It is called “productivity growth.” Currently productivity growth, adjusted for some index issues, is about 1.5 percent annually. Over the next 23 years this rate of productivity growth would imply an increase in average wages of 40.8 percent, more than five times the loss due to demographics.
What’s more, 2035 is a low point on demographic spectrum. The ratio of workers to retirees is projected to be pretty much stable over the next three decades. Each decade productivity growth should raise wages by another 16.1 percent if we maintain the current growth rate. In other words, there is no reason to think that demographics will cause workers to see declining living standards in the future.
There are important issues here about future living standards. Because of our broken health care system an ever larger portion of compensation is being diverted to health care. This is a drag on living standards, but the problem is our health care system, not demographics.
There is also the problem of inequality. Most workers have seen few gains from productivity over the last three decades because such a large share of income has been shifted to those at the top. If this trend continues it also threatens the living standards of workers in the future.
But Thomas Friedman apparently doesn’t understand these facts. Instead he is trying to get readers to focus on something that is not a problem, the aging of the population.
While many of us learned arithmetic in third grade, apparently there are not enough people who retained this knowledge for the NYT to staff its opinion page. Hence they have Thomas Friedman warning us that the retirement of the baby boom cohort is going to devastate the country.
Now, if Friedman could do arithmetic he could turn to the Social Security trustees report and see that they project the ratio of workers to retirees to fall from 2.8 in 2012 to 2.0 in 2035. Is that scary?
Here’s where Mr. Arithmetic can help us. Let’s assume that retirees on average consume 75 percent as much as the working age population. That’s not their Social Security benefit (SS benefits are less than 40 percent of the average wage), this is their total consumption. Remember, they don’t have to travel to and from work every day, they don’t need to arrange child care, or incur other work related expenses.
If workers are taxed or in some other way have their consumption reduced to support retirees, then they currently get to keep 78.9 percent of what they make. The rising number of retirees will reduce this to 72.7 percent by 2035. This means that if nothing else changes workers would see a 7.8 percent decline in their take home pay as a result of this demographic change.
Fortunately, something else will change. It is called “productivity growth.” Currently productivity growth, adjusted for some index issues, is about 1.5 percent annually. Over the next 23 years this rate of productivity growth would imply an increase in average wages of 40.8 percent, more than five times the loss due to demographics.
What’s more, 2035 is a low point on demographic spectrum. The ratio of workers to retirees is projected to be pretty much stable over the next three decades. Each decade productivity growth should raise wages by another 16.1 percent if we maintain the current growth rate. In other words, there is no reason to think that demographics will cause workers to see declining living standards in the future.
There are important issues here about future living standards. Because of our broken health care system an ever larger portion of compensation is being diverted to health care. This is a drag on living standards, but the problem is our health care system, not demographics.
There is also the problem of inequality. Most workers have seen few gains from productivity over the last three decades because such a large share of income has been shifted to those at the top. If this trend continues it also threatens the living standards of workers in the future.
But Thomas Friedman apparently doesn’t understand these facts. Instead he is trying to get readers to focus on something that is not a problem, the aging of the population.
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Apparently NYT reporters never heard of immigration. This is the only way to explain a front page piece that discusses an alleged shortage of doctors in the United States that never once discusses the possibility of bringing more doctors in from other countries.
As a practical matter this should be very easy to do since doctors in the United States earn on average about twice as much as their comparably trained counterparts in Western Europe and Canada.They earn five to ten times as much as doctors in the developing world.
If the government were to set up mechanisms that could fast track the certification of doctors from other countries so that they could quickly establish that they have been trained to U.S. standards and then would be free to come to practice in the United States just as any native-born doctor, it is likely hundreds of thousands of doctors from around the world would quickly take advantage of the opportunity. (In the case of developing countries, it is easy [even a DC policy wonk could do it] to design mechanisms where they would be compensated for doctors who came to the United States so that they could train two or three doctors for every one that came to the United States. This would ensure that developing countries gained from the arrangement as well.)
It is incredible that the NYT is so committed to protectionism that it would not even discuss immigration in this context of a doctor shortage. This protectionism is far more harmful both economically and to the country’s health than the trade barriers that the NYT has often written about. It is perhaps worth noting that the protectionism that gets highlighted in the NYT and other media outlets tends to favor less-educated workers.
Apparently NYT reporters never heard of immigration. This is the only way to explain a front page piece that discusses an alleged shortage of doctors in the United States that never once discusses the possibility of bringing more doctors in from other countries.
As a practical matter this should be very easy to do since doctors in the United States earn on average about twice as much as their comparably trained counterparts in Western Europe and Canada.They earn five to ten times as much as doctors in the developing world.
If the government were to set up mechanisms that could fast track the certification of doctors from other countries so that they could quickly establish that they have been trained to U.S. standards and then would be free to come to practice in the United States just as any native-born doctor, it is likely hundreds of thousands of doctors from around the world would quickly take advantage of the opportunity. (In the case of developing countries, it is easy [even a DC policy wonk could do it] to design mechanisms where they would be compensated for doctors who came to the United States so that they could train two or three doctors for every one that came to the United States. This would ensure that developing countries gained from the arrangement as well.)
It is incredible that the NYT is so committed to protectionism that it would not even discuss immigration in this context of a doctor shortage. This protectionism is far more harmful both economically and to the country’s health than the trade barriers that the NYT has often written about. It is perhaps worth noting that the protectionism that gets highlighted in the NYT and other media outlets tends to favor less-educated workers.
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