If one of the major party presidential candidates started to claim that the sun orbits the earth, reporters would suddenly treat the issue as a matter of debate. We would be told that candidate X claims that the sun goes around the earth, however candidate Y maintains that the earth actually circles the sun.
That is the conclusion that one would get from an ABC news piece that discussed Governor Romney’s proposal to replace the existing Medicare system with a voucher system. This would in fact raise the costs of providing Medicare equivalent policies. This is a conclusion that the Congressional Budget Office reached based on years of studying both the operation of private plans within Medicare, under the Medicare Plus Choice system and the Medicare Advantage system, and the operation of the huge private insurance market outside of Medicare.
In this context, President Obama’s assertion that Romney’s plan would leave seniors unable to afford traditional Medicare is not just an empty claim. It is a fact.
Responsible reporting would inform audiences of the evidence on this issue, and not leave it as a he said/she said. Reporters have the time to investigate the truth of the candidates competing claims. Their audiences do not.
[Thanks to Robert Salzberg for the lead.]
If one of the major party presidential candidates started to claim that the sun orbits the earth, reporters would suddenly treat the issue as a matter of debate. We would be told that candidate X claims that the sun goes around the earth, however candidate Y maintains that the earth actually circles the sun.
That is the conclusion that one would get from an ABC news piece that discussed Governor Romney’s proposal to replace the existing Medicare system with a voucher system. This would in fact raise the costs of providing Medicare equivalent policies. This is a conclusion that the Congressional Budget Office reached based on years of studying both the operation of private plans within Medicare, under the Medicare Plus Choice system and the Medicare Advantage system, and the operation of the huge private insurance market outside of Medicare.
In this context, President Obama’s assertion that Romney’s plan would leave seniors unable to afford traditional Medicare is not just an empty claim. It is a fact.
Responsible reporting would inform audiences of the evidence on this issue, and not leave it as a he said/she said. Reporters have the time to investigate the truth of the candidates competing claims. Their audiences do not.
[Thanks to Robert Salzberg for the lead.]
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Actually, he just gives the right-wing caricature of the left, telling readers:
“The argument between left and right is about what you do beyond infrastructure. It’s about transfer payments and redistributionist taxation, about geometrically expanding entitlements, about tax breaks and subsidies to induce actions pleasing to central planners.”
The real difference is not over government intervvention in the market. The right actually supports massive government interventions in the economy. For example, government granted patent monopolies on prescription drugs will transfer more than $4 trillion from consumers to drug makers over the next decade compared to a free market.
The right also supports having the Federal Reserve Board deliberately raise unemployment to put downward pressure on the wages of ordinary workers and thereby keep inflation low. And, it supports having trade agreements that put manufacturing workers in direct competition with low-paid workers in the developing world, while leaving highly paid professionals like doctors and lawyers largely protected. This has the predicted and actual effect of redistributing income upward.
The real argument between left and right has little to do with government intervention in the market. The real issue is whether the goal is to steer the economy in a direction that will allow the benefits of growth to be broadly shared or whether to structure the economy in a way that directs income upward.
Actually, he just gives the right-wing caricature of the left, telling readers:
“The argument between left and right is about what you do beyond infrastructure. It’s about transfer payments and redistributionist taxation, about geometrically expanding entitlements, about tax breaks and subsidies to induce actions pleasing to central planners.”
The real difference is not over government intervvention in the market. The right actually supports massive government interventions in the economy. For example, government granted patent monopolies on prescription drugs will transfer more than $4 trillion from consumers to drug makers over the next decade compared to a free market.
The right also supports having the Federal Reserve Board deliberately raise unemployment to put downward pressure on the wages of ordinary workers and thereby keep inflation low. And, it supports having trade agreements that put manufacturing workers in direct competition with low-paid workers in the developing world, while leaving highly paid professionals like doctors and lawyers largely protected. This has the predicted and actual effect of redistributing income upward.
The real argument between left and right has little to do with government intervention in the market. The real issue is whether the goal is to steer the economy in a direction that will allow the benefits of growth to be broadly shared or whether to structure the economy in a way that directs income upward.
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Matt Yglesias notes the housing bubble in Canada and then asks what the Canadian government could do about the bubble. His point is that it would be enormously unpopular if the government deliberately took steps to burst the bubble.
This is of course true and it is one reason why the government should have acted years earlier to prevent the bubble from getting as large as it did. However there is another actor that doesn’t appear in Matt’s story, the Bank of Canada. The official story on central banks is that they are supposed to be independent so that they can do what is best for the economy without fear of the immediate political repercussions.
As a practical matter, central banks tend not to be independent of political influence, especially from the financial sector. However it is reasonable to ask why the central bank is not doing what it is supposed to do. Suppose the Bank of Canada announced a 1 percentage point increase in the overnight money rate and that it would continue to increase interest rates until house prices fell by 30 percent, or whatever amount it considered appropriate.
It is difficult to believe that this policy would not quickly deflate the bubble. This may not be pretty (if the bank had been awake it would have done this 5 years ago), but it would be better than letting the bubble just continue to grow. And what is the Bank doing that is more important, targeting 2.0 percent inflation?
Matt Yglesias notes the housing bubble in Canada and then asks what the Canadian government could do about the bubble. His point is that it would be enormously unpopular if the government deliberately took steps to burst the bubble.
This is of course true and it is one reason why the government should have acted years earlier to prevent the bubble from getting as large as it did. However there is another actor that doesn’t appear in Matt’s story, the Bank of Canada. The official story on central banks is that they are supposed to be independent so that they can do what is best for the economy without fear of the immediate political repercussions.
As a practical matter, central banks tend not to be independent of political influence, especially from the financial sector. However it is reasonable to ask why the central bank is not doing what it is supposed to do. Suppose the Bank of Canada announced a 1 percentage point increase in the overnight money rate and that it would continue to increase interest rates until house prices fell by 30 percent, or whatever amount it considered appropriate.
It is difficult to believe that this policy would not quickly deflate the bubble. This may not be pretty (if the bank had been awake it would have done this 5 years ago), but it would be better than letting the bubble just continue to grow. And what is the Bank doing that is more important, targeting 2.0 percent inflation?
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Simon Johnson has an interesting column discussing the Fed’s response to the rigging of the LIBOR rate. He refers to the memo that Treasury Secretary Timothy Geithner (then the head of the New York Fed) sent to the Bank of England in 2008 and notes evidence that the Fed knew of rigging as early as 2005. Johnson then cites comments from Fed Chairman Ben Bernanke that the Fed couldn’t do anything more than it did in calling the Bank of England’s attention to the problem.
This is known as the Incredible Hulk theory of public policy. Comic book fans everywhere know the story of the Incredible Hulk. He is the alter ego of mild-mannered scientist Bruce Banner. While ordinarily Dr. Banner is meek and retiring, when he gets angry he turns into the gigantic and powerful Incredible Hulk.
The United States government can be the Incredible Hulk at important moments. Certainly it was the Incredible Hulk that invaded Iraq. It is also the Incredible Hulk that engages in drone strikes around the world with little regard for the wishes of the governments of the countries in which the strikes take place.
The United States government as the Incredible Hulk also can also show up in the world of finance. After the September 11th attacks the United States demanded that European governments change their rules on bank secrecy in order to allow it to better track the financing of terrorist networks. The European governments quickly complied.
However the United States government can also be mild-mannered Bruce Banner, as was apparently the case with the LIBOR scandal. As noted, Federal Reserve Board Chairman Ben Bernanke told a congressional committee that the Fed had sent a memo to the appropriate officials at the Bank of England, and that was all it could do.
While Johnson sketches out how this was an enormous failure of the Fed in its responsibility to regulate U.S. banks and protect U.S. financial markets, it is also interesting to ask how the Incredible Hulk might have dealt with this problem. While it is unlikely that an invasion of the U.K. or drone strikes against the Bank of England would be necessary, there were some simple steps that Fed could have taken that would almost certainly have quickly brought an end to the rigging.
For example, if a month or two passed following the Geithner memo with no action, there could have been a follow up memo. This one would explain that the LIBOR is of fundamental importance to the U.S. since so many loans are tied to it. It would then demand action and explain that if no action is taken by a date certain (tough guy language), then the Fed would hold a press conference in which it would publicly disclose both its evidence of LIBOR rigging and its unsuccessful effort to get the Bank of England to clean up the cesspool.
I could be mistaken, but my guess is that such a memo would have prompted Mervyn King (the head of the Bank of England) to move very quickly to stop the rigging rather than risk public humiliation and dismissal from his position. Unfortunately, we had Bruce Banner at the Fed, so we will never know exactly what the response to stronger measures would have been.
Simon Johnson has an interesting column discussing the Fed’s response to the rigging of the LIBOR rate. He refers to the memo that Treasury Secretary Timothy Geithner (then the head of the New York Fed) sent to the Bank of England in 2008 and notes evidence that the Fed knew of rigging as early as 2005. Johnson then cites comments from Fed Chairman Ben Bernanke that the Fed couldn’t do anything more than it did in calling the Bank of England’s attention to the problem.
This is known as the Incredible Hulk theory of public policy. Comic book fans everywhere know the story of the Incredible Hulk. He is the alter ego of mild-mannered scientist Bruce Banner. While ordinarily Dr. Banner is meek and retiring, when he gets angry he turns into the gigantic and powerful Incredible Hulk.
The United States government can be the Incredible Hulk at important moments. Certainly it was the Incredible Hulk that invaded Iraq. It is also the Incredible Hulk that engages in drone strikes around the world with little regard for the wishes of the governments of the countries in which the strikes take place.
The United States government as the Incredible Hulk also can also show up in the world of finance. After the September 11th attacks the United States demanded that European governments change their rules on bank secrecy in order to allow it to better track the financing of terrorist networks. The European governments quickly complied.
However the United States government can also be mild-mannered Bruce Banner, as was apparently the case with the LIBOR scandal. As noted, Federal Reserve Board Chairman Ben Bernanke told a congressional committee that the Fed had sent a memo to the appropriate officials at the Bank of England, and that was all it could do.
While Johnson sketches out how this was an enormous failure of the Fed in its responsibility to regulate U.S. banks and protect U.S. financial markets, it is also interesting to ask how the Incredible Hulk might have dealt with this problem. While it is unlikely that an invasion of the U.K. or drone strikes against the Bank of England would be necessary, there were some simple steps that Fed could have taken that would almost certainly have quickly brought an end to the rigging.
For example, if a month or two passed following the Geithner memo with no action, there could have been a follow up memo. This one would explain that the LIBOR is of fundamental importance to the U.S. since so many loans are tied to it. It would then demand action and explain that if no action is taken by a date certain (tough guy language), then the Fed would hold a press conference in which it would publicly disclose both its evidence of LIBOR rigging and its unsuccessful effort to get the Bank of England to clean up the cesspool.
I could be mistaken, but my guess is that such a memo would have prompted Mervyn King (the head of the Bank of England) to move very quickly to stop the rigging rather than risk public humiliation and dismissal from his position. Unfortunately, we had Bruce Banner at the Fed, so we will never know exactly what the response to stronger measures would have been.
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Apple got the government to impose a tax on tablet computer sales and to turn over the revenue to the company. That’s not exactly what happened, but pretty close when it managed to persuade a California judge to pull Samsung’s Galaxy tablets off the shelves in a patent infringement suit. This will allow Apple to sell more of its iPads at a higher price than would otherwise be the case.
Apple got the government to impose a tax on tablet computer sales and to turn over the revenue to the company. That’s not exactly what happened, but pretty close when it managed to persuade a California judge to pull Samsung’s Galaxy tablets off the shelves in a patent infringement suit. This will allow Apple to sell more of its iPads at a higher price than would otherwise be the case.
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Apparently military contractors hold an especially warm place in the hearts of the Washington Post editors. How else can one explain another story devoted to the fact that they will lose money and reduce employment if the military cuts slated to go into effect in January actually occur.
Some folks may recall a major news article the paper ran last month that was devoted to a study commissioned by military contractors that hyped the job loss that would result from these cuts. Of course in a downturn like the present one, any cuts in government spending will cost jobs.
The logic is fairly simple, the government spending is hiring people, both directly and indirectly. It hires people directly because workers are being paid to teach, build roads, or build bombers. It hires people indirectly because these workers will then spend most of their pay at grocery stores, restaurants and other places where their spending will help to employ people.
If the economy were close to full employment then government spending could be seen as crowding out private spending, primarily by raising interest rate. However, we are not close to full employment, so cuts in government spending will cost jobs. It is that simple.
So just keep saying that until its clear: cuts in government spending (military or otherwise) cost jobs. Don’t waste anyone’s time talking about the budget and the economy until you understand this point. And when you do, please tell the WAPO to stop highlighting the whining of military contractors who seem to think the government owes them contracts.
Apparently military contractors hold an especially warm place in the hearts of the Washington Post editors. How else can one explain another story devoted to the fact that they will lose money and reduce employment if the military cuts slated to go into effect in January actually occur.
Some folks may recall a major news article the paper ran last month that was devoted to a study commissioned by military contractors that hyped the job loss that would result from these cuts. Of course in a downturn like the present one, any cuts in government spending will cost jobs.
The logic is fairly simple, the government spending is hiring people, both directly and indirectly. It hires people directly because workers are being paid to teach, build roads, or build bombers. It hires people indirectly because these workers will then spend most of their pay at grocery stores, restaurants and other places where their spending will help to employ people.
If the economy were close to full employment then government spending could be seen as crowding out private spending, primarily by raising interest rate. However, we are not close to full employment, so cuts in government spending will cost jobs. It is that simple.
So just keep saying that until its clear: cuts in government spending (military or otherwise) cost jobs. Don’t waste anyone’s time talking about the budget and the economy until you understand this point. And when you do, please tell the WAPO to stop highlighting the whining of military contractors who seem to think the government owes them contracts.
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Most people probably think that presidential campaigns are about getting the support of powerful political actors and interest groups. However the NYT told readers that they are wrong to believe this. Instead, the NYT told readers in a headline that:
“philosophical clash over government’s role highlights parties divide.”
In fact, as the article makes clear there is not really a philosophical clash at stake here. Governor Romney was deliberately misrepresenting a comment made by President Obama to imply that “he does not believe in individual success or the free market.”
While the article does it best to tell readers that there are philosophical issues at stake all the evidence suggests that Romney’s supporters would like to pay less in taxes so that they will have more money. President Obama is trying to appeal to interest groups that will benefit from government programs like Medicare and student loans.
There is nothing in the article to support its assertion that:
“the choice between Mr. Obama and Mr. Romney presents voters with starkly different philosophies about the role of government in American society.”
In fact both candidates believe that the government should intervene to provide too big to fail protection to large banks, a subsidy worth tens of billions of dollar a year. They believe that the government should grant drug companies patent monopolies that will increase the cost of drugs by trillions of dollars over the next decade. And both candidates have supported a pattern of selective trade protection that redistributes money from ordinary workers to corporations and highly educated professionals.
These areas of agreement about the government’s role in the economy dwarf the areas of difference. The effort of the NYT to inflate the importance of relatively small differences on the government’s role and to transform an argument between competing interest groups into a matter of philosophy does not belong in the news section. [Thanks Joe]
Most people probably think that presidential campaigns are about getting the support of powerful political actors and interest groups. However the NYT told readers that they are wrong to believe this. Instead, the NYT told readers in a headline that:
“philosophical clash over government’s role highlights parties divide.”
In fact, as the article makes clear there is not really a philosophical clash at stake here. Governor Romney was deliberately misrepresenting a comment made by President Obama to imply that “he does not believe in individual success or the free market.”
While the article does it best to tell readers that there are philosophical issues at stake all the evidence suggests that Romney’s supporters would like to pay less in taxes so that they will have more money. President Obama is trying to appeal to interest groups that will benefit from government programs like Medicare and student loans.
There is nothing in the article to support its assertion that:
“the choice between Mr. Obama and Mr. Romney presents voters with starkly different philosophies about the role of government in American society.”
In fact both candidates believe that the government should intervene to provide too big to fail protection to large banks, a subsidy worth tens of billions of dollar a year. They believe that the government should grant drug companies patent monopolies that will increase the cost of drugs by trillions of dollars over the next decade. And both candidates have supported a pattern of selective trade protection that redistributes money from ordinary workers to corporations and highly educated professionals.
These areas of agreement about the government’s role in the economy dwarf the areas of difference. The effort of the NYT to inflate the importance of relatively small differences on the government’s role and to transform an argument between competing interest groups into a matter of philosophy does not belong in the news section. [Thanks Joe]
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The NYT had a column today on rebalancing the global economy by Li Congjun, the head of Xinhua News Agency. While the article talks about the United States consuming too much and China consuming too little, remarkably the piece never once mentions currency values.
If the United States reduces its consumption, without a corresponding reduction in the value of the dollar, the textbook econ tells us that it just leads to unemployment, not a rebalancing. The events of the last four years have kindly proven the textbooks to be correct on this point.
Similarly, the textbook tells us that if China increases consumption, without also having a sharp rise in the value of its currency, then it will lead to inflation. China’s experience has also proven the textbook economics right.
It would have been useful to have this piece written by someone who would at least acknowledge basic economics.
The NYT had a column today on rebalancing the global economy by Li Congjun, the head of Xinhua News Agency. While the article talks about the United States consuming too much and China consuming too little, remarkably the piece never once mentions currency values.
If the United States reduces its consumption, without a corresponding reduction in the value of the dollar, the textbook econ tells us that it just leads to unemployment, not a rebalancing. The events of the last four years have kindly proven the textbooks to be correct on this point.
Similarly, the textbook tells us that if China increases consumption, without also having a sharp rise in the value of its currency, then it will lead to inflation. China’s experience has also proven the textbook economics right.
It would have been useful to have this piece written by someone who would at least acknowledge basic economics.
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Pensions saw strong double-digit returns in the last years of the 90s. They had negative returns in the first years of the last decade. If anyone extrapolated from the last three years of the 90s and predicted double digit returns for the decades ahead or the first three years of the last decade and predicted flat or negative returns, they should have been taken far away from any position with any responsibility for pensions.
Unfortunately, the world does not work this way. Such absurd extrapolations are common practice as Sacramento Bee columnist Dan Walters showed us in a discussion of the returns on California pensions. Not only is it foolish to assume that a recent past of low returns will translate into low returns in the future and vice versa, the opposite is in fact true.
The plunge in trend price to earnings ratios (PEs) associated with the collapse of the stock bubble in 2000-2002 meant that it was possible for the stock market to provide higher returns over a sustained period. In the same way, the run-up of PEs to unprecedented levels at the end of the 90s ensured that returns would have to be lower in the future.
Those familiar with arithmetic understand this simple point. Unfortunately, relatively few such people are admitted to the debate over pension fund accounting.
Pensions saw strong double-digit returns in the last years of the 90s. They had negative returns in the first years of the last decade. If anyone extrapolated from the last three years of the 90s and predicted double digit returns for the decades ahead or the first three years of the last decade and predicted flat or negative returns, they should have been taken far away from any position with any responsibility for pensions.
Unfortunately, the world does not work this way. Such absurd extrapolations are common practice as Sacramento Bee columnist Dan Walters showed us in a discussion of the returns on California pensions. Not only is it foolish to assume that a recent past of low returns will translate into low returns in the future and vice versa, the opposite is in fact true.
The plunge in trend price to earnings ratios (PEs) associated with the collapse of the stock bubble in 2000-2002 meant that it was possible for the stock market to provide higher returns over a sustained period. In the same way, the run-up of PEs to unprecedented levels at the end of the 90s ensured that returns would have to be lower in the future.
Those familiar with arithmetic understand this simple point. Unfortunately, relatively few such people are admitted to the debate over pension fund accounting.
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The NYT devoted a lengthy article to the difference in experiences and opportunities for women and their children when there is a second earner in the household as opposed to a situation where the woman is raising children by herself. While the growth in the number of single parent families has been one of the factors increasing inequality among families with children, most of the impact of this change in family structure had been felt by 1985 according to a study by Bruce Western, which is cited in the article.
As pointed out by my colleague Shawn Fremstad, Western finds that the effect of changing family structure on inequality was negligible in the decade from 1985 to 1995 and actually was a factor reducing inequality in the decade from 1995 to 2005. In other words, this piece on the impact of changing family structure on the growth in inequality between families might have been an appropriate news story for 1985, but at this point it is a quarter century out of date. The vast majority of the rise in inequality in the last quarter century, and indeed in the whole period, is due to within group inequality meaning that it is due to the growth of inequality among families with the same number of wage earners and education levels. (Folks may also want to read Shawn’s follow-up post.)
The NYT devoted a lengthy article to the difference in experiences and opportunities for women and their children when there is a second earner in the household as opposed to a situation where the woman is raising children by herself. While the growth in the number of single parent families has been one of the factors increasing inequality among families with children, most of the impact of this change in family structure had been felt by 1985 according to a study by Bruce Western, which is cited in the article.
As pointed out by my colleague Shawn Fremstad, Western finds that the effect of changing family structure on inequality was negligible in the decade from 1985 to 1995 and actually was a factor reducing inequality in the decade from 1995 to 2005. In other words, this piece on the impact of changing family structure on the growth in inequality between families might have been an appropriate news story for 1985, but at this point it is a quarter century out of date. The vast majority of the rise in inequality in the last quarter century, and indeed in the whole period, is due to within group inequality meaning that it is due to the growth of inequality among families with the same number of wage earners and education levels. (Folks may also want to read Shawn’s follow-up post.)
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