Charles Krauthammer is angry at President Obama for not allowing more oil drilling and delaying the Keystone Pipeline. He suspects that he doesn’t like fossil fuels. (There’s something called “global warming,” which could lead to hundreds of millions of deaths due to floods and droughts, but hey, we don’t talk about that here.)
Anyhow, Krauthammer is upset that President Obama keeps saying that drilling everywhere all the time will not bring down the price of oil. Of course this happens to be true.
Even if we told BP and the other oil companies we don’t care how many people they kill in the process (11 workers died in the Deepwater Horizon explosion) and whose land and beaches they destroy (in other words, no respect for private property) they could at most increase production by 1-2 million barrels a day, and even this increase would take years to bring about.
That would increase would supplies by around 2 percent, perhaps leading to a reduction in price on the order of 5 percent. If Krauthammer has research that shows something different, he should share it with readers.
The Keystone pipeline would mostly have the effect of redistributing gas within the U.S. It would lead to higher prices in the Midwest and somewhat lower prices on the East Coast.
Krauthammer also criticizes Obama for claiming that reduced demand will lower prices. While Obama is wrong if he literally meant that reduced demand would mean lower gas prices, if he meant that increased efficiency would lower energy costs, then he is absolutely right. It costs half as much to drive a car a mile if it gets 40 miles a gallon than if it gets 20 miles a gallon.
One last point, Krauthammer is upset that President Obama is spending 0.0004 percent of the federal budget on research into using algae as a fuel source. If we cut this spending, that apparently Krauthammer knows to be foolish, we could rebate 5 cents to every person in the country.
Charles Krauthammer is angry at President Obama for not allowing more oil drilling and delaying the Keystone Pipeline. He suspects that he doesn’t like fossil fuels. (There’s something called “global warming,” which could lead to hundreds of millions of deaths due to floods and droughts, but hey, we don’t talk about that here.)
Anyhow, Krauthammer is upset that President Obama keeps saying that drilling everywhere all the time will not bring down the price of oil. Of course this happens to be true.
Even if we told BP and the other oil companies we don’t care how many people they kill in the process (11 workers died in the Deepwater Horizon explosion) and whose land and beaches they destroy (in other words, no respect for private property) they could at most increase production by 1-2 million barrels a day, and even this increase would take years to bring about.
That would increase would supplies by around 2 percent, perhaps leading to a reduction in price on the order of 5 percent. If Krauthammer has research that shows something different, he should share it with readers.
The Keystone pipeline would mostly have the effect of redistributing gas within the U.S. It would lead to higher prices in the Midwest and somewhat lower prices on the East Coast.
Krauthammer also criticizes Obama for claiming that reduced demand will lower prices. While Obama is wrong if he literally meant that reduced demand would mean lower gas prices, if he meant that increased efficiency would lower energy costs, then he is absolutely right. It costs half as much to drive a car a mile if it gets 40 miles a gallon than if it gets 20 miles a gallon.
One last point, Krauthammer is upset that President Obama is spending 0.0004 percent of the federal budget on research into using algae as a fuel source. If we cut this spending, that apparently Krauthammer knows to be foolish, we could rebate 5 cents to every person in the country.
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George Will has decided that it is unconstitutional for state and local governments to negotiate contracts with their workers that have the governments paying for some of the time of union staff. He found $900,000 of such payments in the Phoenix police contract and decided that is an unconstitutional gift.
It would be interesting to see how Will compares this to CEOs of companies that contract with the government paying themselves tens of millions of dollars a year. That might seem a much larger gift.
No doubt Will would say that companies negotiated a contract with the government and how the company choose to divide their money is their own business. However if he applied the logic consistently then he would end up with the exact same story with government workers.(Will also argues that the political power of public sector unions adds an element of corruption to this story. That doesn’t help his case much. Government contractors have also been known to make campaign contributions.)
When unions negotiate a contract that provides for payment of union officers they understand that they are giving up something in terms of wages or other compensation. In other words, the government does not negotiate a contract with workers and then say “hey, here’s another $900,000 to pay for union activities.” The money to cover the cost of running the union is coming out of compensation that workers would have otherwise earned.
That is the econ 101 lesson and that is why it is unlikely that any court would waste taxpayers money reviewing a lawsuit that is so obviously ridiculous. George Will obviously does not like unions, but he will have to do a bit more homework if he wants to make his case in court, although he has obviously done enough homework to make the Washington Post oped page.
George Will has decided that it is unconstitutional for state and local governments to negotiate contracts with their workers that have the governments paying for some of the time of union staff. He found $900,000 of such payments in the Phoenix police contract and decided that is an unconstitutional gift.
It would be interesting to see how Will compares this to CEOs of companies that contract with the government paying themselves tens of millions of dollars a year. That might seem a much larger gift.
No doubt Will would say that companies negotiated a contract with the government and how the company choose to divide their money is their own business. However if he applied the logic consistently then he would end up with the exact same story with government workers.(Will also argues that the political power of public sector unions adds an element of corruption to this story. That doesn’t help his case much. Government contractors have also been known to make campaign contributions.)
When unions negotiate a contract that provides for payment of union officers they understand that they are giving up something in terms of wages or other compensation. In other words, the government does not negotiate a contract with workers and then say “hey, here’s another $900,000 to pay for union activities.” The money to cover the cost of running the union is coming out of compensation that workers would have otherwise earned.
That is the econ 101 lesson and that is why it is unlikely that any court would waste taxpayers money reviewing a lawsuit that is so obviously ridiculous. George Will obviously does not like unions, but he will have to do a bit more homework if he wants to make his case in court, although he has obviously done enough homework to make the Washington Post oped page.
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Simon Johnson had a nice blogpost in the NYT arguing that populism has often been a source of good economic ideas in U.S. history with a focus on populist sentiment for breaking up too big to fail banks. At one point Johnson notes some of the constructive measures pushed by populists, noting that the direct election of senators and the income tax were both populist ideas.
One other item that should be on this list is ending the gold standard. This was a rallying cry for the populists throughout their history. It was also good policy, as going off the gold standard laid the basis for the recovery from the Great Depression.
Simon Johnson had a nice blogpost in the NYT arguing that populism has often been a source of good economic ideas in U.S. history with a focus on populist sentiment for breaking up too big to fail banks. At one point Johnson notes some of the constructive measures pushed by populists, noting that the direct election of senators and the income tax were both populist ideas.
One other item that should be on this list is ending the gold standard. This was a rallying cry for the populists throughout their history. It was also good policy, as going off the gold standard laid the basis for the recovery from the Great Depression.
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Clive Crook seems to want to both expand and privatize Social Security in part to address the real problem that retirees do not have enough money to have a decent standard of living. Before addressing his main policy proposal, it’s worth addressing a few things that he gets wrong.
First, he complains that the program is adding to the deficit, telling readers to:
“Forget the ‘trust fund’ and its holdings of government debt. That’s money the government owes to itself: It nets out to zero.”
Yes, I keep telling Peter Peterson to forget his holdings of government debt. That is simply money owed by the government.
Look, this is a real simple logical point. We keep a separate account for Social Security. Clive Crook and whoever else may not like that fact, but it happens to be reality.
That is why it is possible for Social Security to run out of money in a way that it is not possible for the Pentagon or State Department to run out of money. If Crook doesn’t believe in the idea of Social Security being a separate account then his next sentence is nonsense:
“What counts is that the system is now adding to the budget deficit, and will add more with time.”
If it’s all one budget, then every spending program adds to the deficit all the time. What Crook wants to do is to ignore the $2.7 trillion in government bonds that Social Security built up over the last quarter century by taxing workers more than was needed to pay benefits. This is known as “stealing.”
Crook then proposes two measures to eliminate projected shortfalls. One is to raise the retirement age. This proposal ignores the fact that many older workers, especially those with less education, work at physically demanding jobs where it will be difficult for them to work into their mid or late sixties.
His next proposal is means-testing. This one doesn’t make much sense once you look at the data. While Peter Peterson may not need his Social Security, there are not many billionaires collecting benefits. To have any noticeable impact on the program’s costs you would have to hit people with non-Social Security incomes of around $40k, and even then the gains would be limited.
However Crook is exactly right in saying that the current Social Security benefit is inadequate to support a decent retirement. To remedy this he proposes a mandatory contribution equal to 5 percent of wages to a new government-run retirement fund. (There would be subsidies for lower income workers, but Crook would probably leave many moderate-income workers hard hit with this 5 percent contribution.)
The idea of increasing the money put aside for retirement is fine, except he uses President Bush’s proposal for individual accounts as his model. Of course President Bush did not want to have collectively invested money, he wanted people to have their own accounts where they could play around with their money. This would have added cost and increased risk compared to what Crook is suggesting.
As far as Crook’s plan, it is not clear what the benefit is from having individuals get an investment return as opposed to a guaranteed benefit based on average returns. The difference is that the government need not worry about the timing of the market (it will survive through a down market), whereas individual workers have to worry a great deal about timing. If the government assumed this timing risk and paid workers an average return on their investment (e.g. 3.0 percent above the rate of inflation), then workers could avoid timing risk.
If there is a downside to going this route and upside to subjecting workers to the risk of market timing, it is hard to see what it is. Anyhow, Crook’s plan clearly is not going anywhere any time soon, but it is good to at least see someone recognizing the need to increase, rather than decrease, retirement income.
Clive Crook seems to want to both expand and privatize Social Security in part to address the real problem that retirees do not have enough money to have a decent standard of living. Before addressing his main policy proposal, it’s worth addressing a few things that he gets wrong.
First, he complains that the program is adding to the deficit, telling readers to:
“Forget the ‘trust fund’ and its holdings of government debt. That’s money the government owes to itself: It nets out to zero.”
Yes, I keep telling Peter Peterson to forget his holdings of government debt. That is simply money owed by the government.
Look, this is a real simple logical point. We keep a separate account for Social Security. Clive Crook and whoever else may not like that fact, but it happens to be reality.
That is why it is possible for Social Security to run out of money in a way that it is not possible for the Pentagon or State Department to run out of money. If Crook doesn’t believe in the idea of Social Security being a separate account then his next sentence is nonsense:
“What counts is that the system is now adding to the budget deficit, and will add more with time.”
If it’s all one budget, then every spending program adds to the deficit all the time. What Crook wants to do is to ignore the $2.7 trillion in government bonds that Social Security built up over the last quarter century by taxing workers more than was needed to pay benefits. This is known as “stealing.”
Crook then proposes two measures to eliminate projected shortfalls. One is to raise the retirement age. This proposal ignores the fact that many older workers, especially those with less education, work at physically demanding jobs where it will be difficult for them to work into their mid or late sixties.
His next proposal is means-testing. This one doesn’t make much sense once you look at the data. While Peter Peterson may not need his Social Security, there are not many billionaires collecting benefits. To have any noticeable impact on the program’s costs you would have to hit people with non-Social Security incomes of around $40k, and even then the gains would be limited.
However Crook is exactly right in saying that the current Social Security benefit is inadequate to support a decent retirement. To remedy this he proposes a mandatory contribution equal to 5 percent of wages to a new government-run retirement fund. (There would be subsidies for lower income workers, but Crook would probably leave many moderate-income workers hard hit with this 5 percent contribution.)
The idea of increasing the money put aside for retirement is fine, except he uses President Bush’s proposal for individual accounts as his model. Of course President Bush did not want to have collectively invested money, he wanted people to have their own accounts where they could play around with their money. This would have added cost and increased risk compared to what Crook is suggesting.
As far as Crook’s plan, it is not clear what the benefit is from having individuals get an investment return as opposed to a guaranteed benefit based on average returns. The difference is that the government need not worry about the timing of the market (it will survive through a down market), whereas individual workers have to worry a great deal about timing. If the government assumed this timing risk and paid workers an average return on their investment (e.g. 3.0 percent above the rate of inflation), then workers could avoid timing risk.
If there is a downside to going this route and upside to subjecting workers to the risk of market timing, it is hard to see what it is. Anyhow, Crook’s plan clearly is not going anywhere any time soon, but it is good to at least see someone recognizing the need to increase, rather than decrease, retirement income.
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A front page Washington Post article touted the 1.1 percent jump in retail sales reported for February. The piece said that the jump came in spite of the increase in the price of gas. This is only partly true, since more than a third of the increase in spending was due to increased spending on gas.
In the short term, higher gas prices are likely to be associated with increased spending, since people find it difficult to reduce their gas purchases. Over a longer period of time, they are likely to change their driving habits to save money.
More importantly, the February retail sales data follows three months in which the Commerce Department consumption expenditures data showed no real gain in spending. While the February retail sales detail indicate that the January data on consumption expenditures may be revised upward, when placed against the prior three months, the February gain does not look particularly impressive.
As the piece notes, it is also important to remember that this was an unusually mild February. The fact that the weather was relatively warm and there were few major snowstorms across the Northeast/Midwest meant that people were more likely to go shopping, go out for dinner and do house repairs that would typically be the case in February. This clearly gave some boost to retail sales for the month.
This piece also seriously understates the role of consumption thus far in the recovery when it tells readers:
“Experts have been waiting for consumers to open their wallets because they are the backbone of the economy, accounting for roughly two-thirds of gross domestic product.”
Actually experts know that consumption has been surprisingly strong thus far in the recovery. The savings rate has been under 5.0 percent for the last three quarters. Historically the savings rate had averaged more than 8.0 percent. It fell sharply in the last two decades as the wealth created by the stock and housing bubbles led people to spend a much larger share of their income.
With this wealth largely eliminated by the collapse of these bubbles it would be reasonable to expect the saving rate to return to its historic level or possibly even to rise above it, as the huge baby boom cohorts approach retirement with almost no assets. The fact that the savings rate has remained well below its historic average tells experts that consumers are spending at a surprisingly strong rate which may not be sustained indefinitely.
A front page Washington Post article touted the 1.1 percent jump in retail sales reported for February. The piece said that the jump came in spite of the increase in the price of gas. This is only partly true, since more than a third of the increase in spending was due to increased spending on gas.
In the short term, higher gas prices are likely to be associated with increased spending, since people find it difficult to reduce their gas purchases. Over a longer period of time, they are likely to change their driving habits to save money.
More importantly, the February retail sales data follows three months in which the Commerce Department consumption expenditures data showed no real gain in spending. While the February retail sales detail indicate that the January data on consumption expenditures may be revised upward, when placed against the prior three months, the February gain does not look particularly impressive.
As the piece notes, it is also important to remember that this was an unusually mild February. The fact that the weather was relatively warm and there were few major snowstorms across the Northeast/Midwest meant that people were more likely to go shopping, go out for dinner and do house repairs that would typically be the case in February. This clearly gave some boost to retail sales for the month.
This piece also seriously understates the role of consumption thus far in the recovery when it tells readers:
“Experts have been waiting for consumers to open their wallets because they are the backbone of the economy, accounting for roughly two-thirds of gross domestic product.”
Actually experts know that consumption has been surprisingly strong thus far in the recovery. The savings rate has been under 5.0 percent for the last three quarters. Historically the savings rate had averaged more than 8.0 percent. It fell sharply in the last two decades as the wealth created by the stock and housing bubbles led people to spend a much larger share of their income.
With this wealth largely eliminated by the collapse of these bubbles it would be reasonable to expect the saving rate to return to its historic level or possibly even to rise above it, as the huge baby boom cohorts approach retirement with almost no assets. The fact that the savings rate has remained well below its historic average tells experts that consumers are spending at a surprisingly strong rate which may not be sustained indefinitely.
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Last week Allan Meltzer had a column in the WSJ telling us that we should stop complaining about inequality and start loving it. His main point is that inequality is increasing everywhere, therefore there is nothing that we can do about it.
Neither part of this story is especially true. As Paul Krugman, Mark Thoma and others have already noted, inequality has not increased anywhere to the same extent as in the United States and in many countries there has been little or no change in most measures of inequality. So clearly different national policies can make a big difference in the extent of inequality.
However even if inequality was increasing everywhere, it does not mean that policy is not a factor. The WSJ may not have heard, but there are international forums like the G-8 and institutions like the WTO where countries coordinate policy.
This means, for example that if they agree on a policy of strong anti-inflation measures that raise unemployment everywhere (as they did), then they have collectively agreed to implement policies that redistribute income upwards. Similarly, if they agree to have stronger patent and copyright protection (as they have), then they have also agreed to policies that redistribute income upward. Unless we think that policies that are decided in international forums should not be subject to political debate, the fact that the same policies of upward redistribution have been imposed in many countries (not just the United States) is hardly an argument that we should not be concerned about them.
The other part of Meltzer’s argument that is just wrong is that because Steve Jobs produced great products we should not be upset about inequality. Most economists are familiar with the concept of “economic rent.” Economic rents occur when people get paid more than is necessary to get them to do their work.
For example, if a firetruck showed up at a burning home with children trapped inside, the parents would gladly pay whatever money they had to have the firefighters rescue them. In Alan Meltzer’s world, if firefighters were making millions of dollars a year showing up at the burning homes of the wealthy we should not complain because saving children from burning buildings is a fantastic service and certainly we are all glad that the firefighters are there.
Of course, the reality is that firefighters are willing to do their work for much less money. They get a relatively good salary, but none of them are making millions of dollars a year.
Arguably the economy has been structured in a way that leads to large rents for those at the top. This is what those complaining about inequality are upset over. The fact that Steve Jobs might have actually made great contributions to society in exchange for his wealth has nothing to do with the time of day and Mr. Meltzer presumably knows this.
Last week Allan Meltzer had a column in the WSJ telling us that we should stop complaining about inequality and start loving it. His main point is that inequality is increasing everywhere, therefore there is nothing that we can do about it.
Neither part of this story is especially true. As Paul Krugman, Mark Thoma and others have already noted, inequality has not increased anywhere to the same extent as in the United States and in many countries there has been little or no change in most measures of inequality. So clearly different national policies can make a big difference in the extent of inequality.
However even if inequality was increasing everywhere, it does not mean that policy is not a factor. The WSJ may not have heard, but there are international forums like the G-8 and institutions like the WTO where countries coordinate policy.
This means, for example that if they agree on a policy of strong anti-inflation measures that raise unemployment everywhere (as they did), then they have collectively agreed to implement policies that redistribute income upwards. Similarly, if they agree to have stronger patent and copyright protection (as they have), then they have also agreed to policies that redistribute income upward. Unless we think that policies that are decided in international forums should not be subject to political debate, the fact that the same policies of upward redistribution have been imposed in many countries (not just the United States) is hardly an argument that we should not be concerned about them.
The other part of Meltzer’s argument that is just wrong is that because Steve Jobs produced great products we should not be upset about inequality. Most economists are familiar with the concept of “economic rent.” Economic rents occur when people get paid more than is necessary to get them to do their work.
For example, if a firetruck showed up at a burning home with children trapped inside, the parents would gladly pay whatever money they had to have the firefighters rescue them. In Alan Meltzer’s world, if firefighters were making millions of dollars a year showing up at the burning homes of the wealthy we should not complain because saving children from burning buildings is a fantastic service and certainly we are all glad that the firefighters are there.
Of course, the reality is that firefighters are willing to do their work for much less money. They get a relatively good salary, but none of them are making millions of dollars a year.
Arguably the economy has been structured in a way that leads to large rents for those at the top. This is what those complaining about inequality are upset over. The fact that Steve Jobs might have actually made great contributions to society in exchange for his wealth has nothing to do with the time of day and Mr. Meltzer presumably knows this.
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Yes, I am serious. He decries the fact that birth rates are now dropping in the Arab world as they had previously in Europe, Japan, and China.
It is utterly bizarre to see a piece like this. Does Brooks not know that wealth depends on income per person, not total income (i.e. Bangladesh is not richer than Denmark in any meaningful sense).
We can easily get by with a lower ratio of workers to retirees because of productivity growth. Furthermore, the smaller number of children will have an important role in reducing the number of non-workers that each worker must support. And, fewer people means less emission of greenhouse emissions and other pollution and less strain on the physical infrastructure.
If Brooks is troubled by lower or negative population growth it must reflect his religious beliefs, it is not a concern that has a basis in reality.
Yes, I am serious. He decries the fact that birth rates are now dropping in the Arab world as they had previously in Europe, Japan, and China.
It is utterly bizarre to see a piece like this. Does Brooks not know that wealth depends on income per person, not total income (i.e. Bangladesh is not richer than Denmark in any meaningful sense).
We can easily get by with a lower ratio of workers to retirees because of productivity growth. Furthermore, the smaller number of children will have an important role in reducing the number of non-workers that each worker must support. And, fewer people means less emission of greenhouse emissions and other pollution and less strain on the physical infrastructure.
If Brooks is troubled by lower or negative population growth it must reflect his religious beliefs, it is not a concern that has a basis in reality.
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An NYT blognote touted a fossil-fuels job boom in the United States. A little skepticism might be in order here.
First the piece highlighted a report from the World Economic Forum that claimed that the oil and gas industry generated 150,000 new jobs last year, which it claimed was 9 percent of total employment growth. There is some question about the multipliers that the study uses to get to 150,000, but even with that number, the 9.0 percent figure is still off.
The Labor Department reports that the economy created 1,840,000 jobs last year. The 150,000 oil and gas related jobs would be 8.15 percent of total jobs growth, which would ordinarily be rounded to 8 percent.
The blogpost later refers to 9 million total jobs in the oil and gas industry. This seems more than a bit high, since adding jobs in gas stations, refining, drilling and pipelines only gets you a bit over 1 million. The source cited is a Pew study, but the only number I could find there was 1.27 million jobs (p 15).
Assuming that we eventually recover from this downturn, we will not need the energy industry to employ people. In fact, the fewer workers needed to provide us with our energy the better. (They can do other things.) However at the moment, we do desperately need more jobs. For this reason it is important to keep the numbers straight.
An NYT blognote touted a fossil-fuels job boom in the United States. A little skepticism might be in order here.
First the piece highlighted a report from the World Economic Forum that claimed that the oil and gas industry generated 150,000 new jobs last year, which it claimed was 9 percent of total employment growth. There is some question about the multipliers that the study uses to get to 150,000, but even with that number, the 9.0 percent figure is still off.
The Labor Department reports that the economy created 1,840,000 jobs last year. The 150,000 oil and gas related jobs would be 8.15 percent of total jobs growth, which would ordinarily be rounded to 8 percent.
The blogpost later refers to 9 million total jobs in the oil and gas industry. This seems more than a bit high, since adding jobs in gas stations, refining, drilling and pipelines only gets you a bit over 1 million. The source cited is a Pew study, but the only number I could find there was 1.27 million jobs (p 15).
Assuming that we eventually recover from this downturn, we will not need the energy industry to employ people. In fact, the fewer workers needed to provide us with our energy the better. (They can do other things.) However at the moment, we do desperately need more jobs. For this reason it is important to keep the numbers straight.
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The Washington Post had a good front page piece that explained that gas prices are determined in a world market and there is nothing that the United States can do to bring prices down to $2.50 a gallon.
The Washington Post had a good front page piece that explained that gas prices are determined in a world market and there is nothing that the United States can do to bring prices down to $2.50 a gallon.
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One of the main reasons that the housing bubble grew unchecked is that major media outlets like the Washington Post refused to present the views of those trying to call attention to the unprecedented run-up in house prices and the disaster that would inevitably follow its collapse. Instead the Washington Post was obsessed with reporting on the budget deficit, following the lead of billionaire investment banker Peter Peterson and his dependents, even though the deficits at the time were very modest by any reasonable measure.
The Washington Post refuses to allow its catastrophic failure in its non-coverage of the housing bubble to affect its reporting in the least. It continues to obsess on the budget deficit, relying almost exclusively for sources on “experts” who were unable to recognize the $8 trillion housing bubble.
It also continues to view the beneficiaries of Peter Peterson’s largesse as valuable sources. Today it ran a piece from the Peter Peterson funded Fiscal Times warning about the “debt bomb” from student loan debt. (The Post did not identify Peter Peterson as the funding source for the Fiscal Times.)
The piece manages to get just about everything wrong. To start with, it did not even get the rate of student debt accumulation right. It told readers:
“The amount of student borrowing skyrocketed from $100 billion in 2010 to $867 billion last year.”
The data show that student debt was around $800 billion in 2010. It was already near $200 billion in 2000. The incredible rate of debt accumulation described in this sentence should have raised eyebrows among editors at the Fiscal Times and Washington Post, if they have any.
Perhaps more importantly, the basic premise of the piece is absurd on its face. The third paragraph has a quote from William Brewer, the head of the National Association of Bankruptcy Attorneys:
“‘This could very well be the next debt bomb for the U.S. economy’ — something akin to the housing mortgage loan crisis that triggered the U.S. financial crisis.”
This is an absurd statement and any serious reporter should have been able to recognize that fact instantly. At the peak of the housing bubble in 2006, the residential housing market in the United States was worth more than $22 trillion. It has since lost close to $8 trillion in real wealth, which is the basis of the current downturn.
As the article explained, the student loan market is now valued at $867 billion, less than 1/25th the size of the housing market at its bubble peak. Furthermore, all of it will not default and the defaults that do occur will be spread over many years. And the government will cover most of the losses since it is guaranteed. How is this supposed to have the same impact as the collapse of the housing bubble?
None of this should be taken as minimizing the plight of recent college graduates who face a serious debt burden in an economy offering few jobs and even fewer good paying jobs. However, it makes no sense to compare this situation to the housing bubble; there is no relationship.
This is like comparing every atrocity to the holocaust. There are many horrible atrocities that have occurred in the last sixty five years but few, if any, can rightly be compared to the holocaust and it is foolish to do so. The advocates for students should make their case in a more honest manner and competent reporters should know better than to fall for this sort of hyperbolic nonsense.
One of the main reasons that the housing bubble grew unchecked is that major media outlets like the Washington Post refused to present the views of those trying to call attention to the unprecedented run-up in house prices and the disaster that would inevitably follow its collapse. Instead the Washington Post was obsessed with reporting on the budget deficit, following the lead of billionaire investment banker Peter Peterson and his dependents, even though the deficits at the time were very modest by any reasonable measure.
The Washington Post refuses to allow its catastrophic failure in its non-coverage of the housing bubble to affect its reporting in the least. It continues to obsess on the budget deficit, relying almost exclusively for sources on “experts” who were unable to recognize the $8 trillion housing bubble.
It also continues to view the beneficiaries of Peter Peterson’s largesse as valuable sources. Today it ran a piece from the Peter Peterson funded Fiscal Times warning about the “debt bomb” from student loan debt. (The Post did not identify Peter Peterson as the funding source for the Fiscal Times.)
The piece manages to get just about everything wrong. To start with, it did not even get the rate of student debt accumulation right. It told readers:
“The amount of student borrowing skyrocketed from $100 billion in 2010 to $867 billion last year.”
The data show that student debt was around $800 billion in 2010. It was already near $200 billion in 2000. The incredible rate of debt accumulation described in this sentence should have raised eyebrows among editors at the Fiscal Times and Washington Post, if they have any.
Perhaps more importantly, the basic premise of the piece is absurd on its face. The third paragraph has a quote from William Brewer, the head of the National Association of Bankruptcy Attorneys:
“‘This could very well be the next debt bomb for the U.S. economy’ — something akin to the housing mortgage loan crisis that triggered the U.S. financial crisis.”
This is an absurd statement and any serious reporter should have been able to recognize that fact instantly. At the peak of the housing bubble in 2006, the residential housing market in the United States was worth more than $22 trillion. It has since lost close to $8 trillion in real wealth, which is the basis of the current downturn.
As the article explained, the student loan market is now valued at $867 billion, less than 1/25th the size of the housing market at its bubble peak. Furthermore, all of it will not default and the defaults that do occur will be spread over many years. And the government will cover most of the losses since it is guaranteed. How is this supposed to have the same impact as the collapse of the housing bubble?
None of this should be taken as minimizing the plight of recent college graduates who face a serious debt burden in an economy offering few jobs and even fewer good paying jobs. However, it makes no sense to compare this situation to the housing bubble; there is no relationship.
This is like comparing every atrocity to the holocaust. There are many horrible atrocities that have occurred in the last sixty five years but few, if any, can rightly be compared to the holocaust and it is foolish to do so. The advocates for students should make their case in a more honest manner and competent reporters should know better than to fall for this sort of hyperbolic nonsense.
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