We know that politicians don’t like to talk about cutting Social Security or Medicare because both programs are hugely popular across the political spectrum. Even large majorities of Republicans are strongly opposed to cutting these programs. This is why politicians like to use the term “entitlements” when they talk about cutting these programs. Entitlements are much less popular than Social Security and Medicare.
While it is understandable that politicians would like to conceal their efforts to do actions that are opposed by most of their constituents, it is not obvious why the media would feel obligated to assist them in this effort. In a top of the hour news segment, WAMU (one of DC’s local NPR affiliates) told listeners about plans to “tweak” or “change” entitlements. In fact, they meant plans to cut Social Security and Medicare.
It is striking that such terms are never used on the tax side. For example, reporters never refer to plans to “change” taxes in reference to plans to end the Bush tax cuts to the wealthy. Nor do they ever refer to this as a “tweak” to the tax code, even though it would have less impact on the after-tax income of the affected population that the cut to Social Security that is being considered (a 0.3 percentage point reduction in the annual cost of living adjustment).
We know that politicians don’t like to talk about cutting Social Security or Medicare because both programs are hugely popular across the political spectrum. Even large majorities of Republicans are strongly opposed to cutting these programs. This is why politicians like to use the term “entitlements” when they talk about cutting these programs. Entitlements are much less popular than Social Security and Medicare.
While it is understandable that politicians would like to conceal their efforts to do actions that are opposed by most of their constituents, it is not obvious why the media would feel obligated to assist them in this effort. In a top of the hour news segment, WAMU (one of DC’s local NPR affiliates) told listeners about plans to “tweak” or “change” entitlements. In fact, they meant plans to cut Social Security and Medicare.
It is striking that such terms are never used on the tax side. For example, reporters never refer to plans to “change” taxes in reference to plans to end the Bush tax cuts to the wealthy. Nor do they ever refer to this as a “tweak” to the tax code, even though it would have less impact on the after-tax income of the affected population that the cut to Social Security that is being considered (a 0.3 percentage point reduction in the annual cost of living adjustment).
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The Washington Post is concerned that the referendum in Greece on the austerity plans will make it difficult for the IMF to approve the next tranche of a loan that will be needed for Greece to make a set of debt payments in December. It told readers:
“Papandreou’s announcement could put the IMF in a difficult position. The agency is due to approve the latest disbursement of money to Greece under an earlier loan agreement. But IMF rules allow such disbursements only under programs that are on track.”
This certainly will not be a problem for the IMF. Since the beginning of the financial crisis all sorts of rules have been suspended in all sorts of different contexts. For example, when the crisis was at its peak in September of 2008 the FDIC suspended mark to market accounting, allowing banks to keep mortgages on their books at full value even when it was almost certain that they would take large losses on them. Citigroup was given guarantees on $300 billion in assets by the Fed and Treasury at a point where it was not even clear what assets were being guaranteed (i.e. they could after the fact put bad assets into the pool).
If the IMF wants to support Greek debt, which it probably will since a default would likely lead to major bank defaults, then it will have no problem getting around its rules. There is no legal body to which such a move can be contested.
This piece also neglected an important aspect to the decision to hold a referendum. The referendum will likely lead the troika dictating bailout terms (the IMF, the European Central Bank, and the European Union) to make further concessions. Their current plan implies more than a decade of austerity where Greece will not return to its pre-crisis level of per capita income until after 2020, even if the economy grows in line with projections.
(Since Greece’s pension system has been one point of contention in the austerity plans designed by the troika, it is worth noting that IMF economists are often able to retire in their early fifties with six-figure pensions.)
The Washington Post is concerned that the referendum in Greece on the austerity plans will make it difficult for the IMF to approve the next tranche of a loan that will be needed for Greece to make a set of debt payments in December. It told readers:
“Papandreou’s announcement could put the IMF in a difficult position. The agency is due to approve the latest disbursement of money to Greece under an earlier loan agreement. But IMF rules allow such disbursements only under programs that are on track.”
This certainly will not be a problem for the IMF. Since the beginning of the financial crisis all sorts of rules have been suspended in all sorts of different contexts. For example, when the crisis was at its peak in September of 2008 the FDIC suspended mark to market accounting, allowing banks to keep mortgages on their books at full value even when it was almost certain that they would take large losses on them. Citigroup was given guarantees on $300 billion in assets by the Fed and Treasury at a point where it was not even clear what assets were being guaranteed (i.e. they could after the fact put bad assets into the pool).
If the IMF wants to support Greek debt, which it probably will since a default would likely lead to major bank defaults, then it will have no problem getting around its rules. There is no legal body to which such a move can be contested.
This piece also neglected an important aspect to the decision to hold a referendum. The referendum will likely lead the troika dictating bailout terms (the IMF, the European Central Bank, and the European Union) to make further concessions. Their current plan implies more than a decade of austerity where Greece will not return to its pre-crisis level of per capita income until after 2020, even if the economy grows in line with projections.
(Since Greece’s pension system has been one point of contention in the austerity plans designed by the troika, it is worth noting that IMF economists are often able to retire in their early fifties with six-figure pensions.)
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A top of the hour Morning Edition news segment told listeners that GDP growth nearly doubled from the second quarter to the third quarter, going from 1.3 percent to 2.5 percent. This is not a useful comparison.
The relevant comparison would be the percentage point change in the growth rate. For example, an increase in growth from 3.0 percent to 5.0 percent is far more meaningful than the rise from the first quarter to the second quarter, even though it is a near-doubling of the growth rate. When growth is slow, an increase that is large measured as a percent of the prior quarter’s growth is not a big deal.
A top of the hour Morning Edition news segment told listeners that GDP growth nearly doubled from the second quarter to the third quarter, going from 1.3 percent to 2.5 percent. This is not a useful comparison.
The relevant comparison would be the percentage point change in the growth rate. For example, an increase in growth from 3.0 percent to 5.0 percent is far more meaningful than the rise from the first quarter to the second quarter, even though it is a near-doubling of the growth rate. When growth is slow, an increase that is large measured as a percent of the prior quarter’s growth is not a big deal.
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The Washington Post reported on the bizarre situation in which the relatively rich European Union is asking China, a relatively poor country, with assistance in its bailout package. It would have been appropriate to remind readers that the only reason that Europe needs help from anyone is that the people running the European Central Bank (ECB) are part of a bizarre cult that worships a 2.0 percent inflation target.
If the ECB was managed in the same way as central banks have been managed through time, it would simply step in as the lender of last resort and guarantee the sovereign debt of the euro zone countries and immediately put an end to the crisis. However, adherence to the 2.0 percent inflation cult prevents the ECB from functioning as a modern central banks.
The 2.0 percent inflation cult is proving to be one of the most destructive faiths in human history. The adherence to this cult prevented the ECB from taking an steps to stem the growth of housing bubbles across the continent. (This was also the case in the United States where the cult is not as widely practiced at the Fed.) Now that these bubbles have collapsed and left the economy in ruins, adherence to the cult is preventing the ECB from responding adequately.
[Addendum: Those interested in hearing more about the situation in Greece may want to tune into a conference on Thursday and Friday at the University of Texas organized by my friend Jamie Galbraith.]
The Washington Post reported on the bizarre situation in which the relatively rich European Union is asking China, a relatively poor country, with assistance in its bailout package. It would have been appropriate to remind readers that the only reason that Europe needs help from anyone is that the people running the European Central Bank (ECB) are part of a bizarre cult that worships a 2.0 percent inflation target.
If the ECB was managed in the same way as central banks have been managed through time, it would simply step in as the lender of last resort and guarantee the sovereign debt of the euro zone countries and immediately put an end to the crisis. However, adherence to the 2.0 percent inflation cult prevents the ECB from functioning as a modern central banks.
The 2.0 percent inflation cult is proving to be one of the most destructive faiths in human history. The adherence to this cult prevented the ECB from taking an steps to stem the growth of housing bubbles across the continent. (This was also the case in the United States where the cult is not as widely practiced at the Fed.) Now that these bubbles have collapsed and left the economy in ruins, adherence to the cult is preventing the ECB from responding adequately.
[Addendum: Those interested in hearing more about the situation in Greece may want to tune into a conference on Thursday and Friday at the University of Texas organized by my friend Jamie Galbraith.]
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It would have been helpful if the Washington Post gave readers some context in an article that discussed Morgan Stanley Director Erskine Bowles’ appearance before the supercommittee. Mr Bowles suggested that the committee agree to $800 billion in additional taxes over the next decade.
This amount is a bit less than 0.4 percent of projected income over this period. It is also less than one fourth of the increase in annual military spending (measured as a share of GDP) in the years since September 11th.
It would have been helpful if the Washington Post gave readers some context in an article that discussed Morgan Stanley Director Erskine Bowles’ appearance before the supercommittee. Mr Bowles suggested that the committee agree to $800 billion in additional taxes over the next decade.
This amount is a bit less than 0.4 percent of projected income over this period. It is also less than one fourth of the increase in annual military spending (measured as a share of GDP) in the years since September 11th.
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Actually he didn’t complain about his lack of access to data, but he probably should have given the column he wrote today. Brooks purports to lecture the Occupy Wall Street crew about how they are focused on the wrong inequality.
He tells them that that there are two inequalities in the U.S. On the one hand we have the CEOs, the Goldman Sachs crew, the lobbyists and the other members of the one percent who have done incredibly well in the last three decades. Brooks calls this the “blue inequality” since the really rich crew tends to live in places like New York City and Washington, DC that tend to vote Democratic.
Brooks tells us that this is less of a big deal than the red inequality, which he defines as the gap between college educated workers and those without a college degree. He tells us that this is the more important form of inequality. He tells us that this is a much bigger issue, since it affects so many more people.
This is where Brooks lack of access to data is so important. The wage gap between college grads and non-college grads is really a 90s story and even more an 80s story. In the last decade, workers with only a college degree (i.e. no professional or advanced degree) did not share in the benefits of economic growth. The ratio of the wages of those with just college degrees to those without college degrees has not risen much since the early 90s.
Wages of non-college educated workers did suffer badly in the 80s due to policies such as the over-valuation of the dollar that made many U.S. manufactured goods uncompetitive internationally, the deliberate increase in unemployment during the Volcker years which threw millions of non-college educated workers out of work, and anti-union measures (e.g. the firing of the PATCO strikers and an anti-union National Labor Relations Board). However since the 90s, the wages of workers with high school degrees have not departed much from the wages of workers with just college degrees, the vast majority of the economy’s gains have gone to the top 1 percent. It is too bad that David Brooks apparently does not have access to this data.
Actually he didn’t complain about his lack of access to data, but he probably should have given the column he wrote today. Brooks purports to lecture the Occupy Wall Street crew about how they are focused on the wrong inequality.
He tells them that that there are two inequalities in the U.S. On the one hand we have the CEOs, the Goldman Sachs crew, the lobbyists and the other members of the one percent who have done incredibly well in the last three decades. Brooks calls this the “blue inequality” since the really rich crew tends to live in places like New York City and Washington, DC that tend to vote Democratic.
Brooks tells us that this is less of a big deal than the red inequality, which he defines as the gap between college educated workers and those without a college degree. He tells us that this is the more important form of inequality. He tells us that this is a much bigger issue, since it affects so many more people.
This is where Brooks lack of access to data is so important. The wage gap between college grads and non-college grads is really a 90s story and even more an 80s story. In the last decade, workers with only a college degree (i.e. no professional or advanced degree) did not share in the benefits of economic growth. The ratio of the wages of those with just college degrees to those without college degrees has not risen much since the early 90s.
Wages of non-college educated workers did suffer badly in the 80s due to policies such as the over-valuation of the dollar that made many U.S. manufactured goods uncompetitive internationally, the deliberate increase in unemployment during the Volcker years which threw millions of non-college educated workers out of work, and anti-union measures (e.g. the firing of the PATCO strikers and an anti-union National Labor Relations Board). However since the 90s, the wages of workers with high school degrees have not departed much from the wages of workers with just college degrees, the vast majority of the economy’s gains have gone to the top 1 percent. It is too bad that David Brooks apparently does not have access to this data.
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The NYT headline told readers:
“G.A.O. Says New York Fed Didn’t Cut Deals on A.I.G.”
That should have us all reassured. After all, we don’t want our government cutting deals when they bail out huge financial institutions.
Actually, the story says pretty much the opposite. The story tells how the Government Accountability Office (G.A.O.) found that the New York Fed made little effort to try to force banks to make concessions after it took control of A.I.G.
The point is that A.I.G. was effectively bankrupt and unable to pay all of its debts. In such circumstances it would have been reasonable for the New York Fed to insist that the creditors, in this case large banks like Goldman Sachs, accept some losses. These banks should understand that they take risks when dealing with financial institutions that are in questionable financial shape and should suffer some loss when they make a bad bet. However the government bailout of A.I.G. ensured that they suffered no consequences from their mistake.
The NYT headline told readers:
“G.A.O. Says New York Fed Didn’t Cut Deals on A.I.G.”
That should have us all reassured. After all, we don’t want our government cutting deals when they bail out huge financial institutions.
Actually, the story says pretty much the opposite. The story tells how the Government Accountability Office (G.A.O.) found that the New York Fed made little effort to try to force banks to make concessions after it took control of A.I.G.
The point is that A.I.G. was effectively bankrupt and unable to pay all of its debts. In such circumstances it would have been reasonable for the New York Fed to insist that the creditors, in this case large banks like Goldman Sachs, accept some losses. These banks should understand that they take risks when dealing with financial institutions that are in questionable financial shape and should suffer some loss when they make a bad bet. However the government bailout of A.I.G. ensured that they suffered no consequences from their mistake.
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People who have the ability to anticipate market movements can make enormous amounts of money running hedge funds and other investment vehicles. Apparently Politico is among the small group of analysts who know what will move markets.
It told readers that:
“If the committee were to take up changes to Social Security, it could show that Congress is looking for systemic changes to the nation’s finances — something markets and credit rating agencies want to see.”
While the credit agencies, who are known for rating subprime mortgage backed securities Aaa, have been explicit in their instructions to Congress, it is not clear how Politico could determine the market’s sentiments. In recent months bonds prices have soared and interest rate on 10-year Treasury bonds fell as low as 1.7 percent. Is Politico telling us that the bond markets are unhappy about the current budget situation and that interest rates will fall even lower if Congress cuts Social Security?
If that is the claim, it would be interesting to see Politico provide the evidence that is the basis for this assertion. Alternatively, if this is just intuition on the part of the reporters/editors at Politico, it would be important to disclose this fact as well.
People who have the ability to anticipate market movements can make enormous amounts of money running hedge funds and other investment vehicles. Apparently Politico is among the small group of analysts who know what will move markets.
It told readers that:
“If the committee were to take up changes to Social Security, it could show that Congress is looking for systemic changes to the nation’s finances — something markets and credit rating agencies want to see.”
While the credit agencies, who are known for rating subprime mortgage backed securities Aaa, have been explicit in their instructions to Congress, it is not clear how Politico could determine the market’s sentiments. In recent months bonds prices have soared and interest rate on 10-year Treasury bonds fell as low as 1.7 percent. Is Politico telling us that the bond markets are unhappy about the current budget situation and that interest rates will fall even lower if Congress cuts Social Security?
If that is the claim, it would be interesting to see Politico provide the evidence that is the basis for this assertion. Alternatively, if this is just intuition on the part of the reporters/editors at Politico, it would be important to disclose this fact as well.
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The Washington Post seems obsessed with pushing stories that old people will bankrupt the world. It had another front page article today warning that aging populations threaten disaster.
Among the lines in the article we are told that:
“China (1.5) is racing to get rich before it becomes old.” [The “1.5” refers to the birth rate per woman.]
It is difficult to see much of a race. China’s rate of annual productivity growth has been close to 8 percent over the last three decades. This means that output per worker has increased roughly tenfold over this period. If the ratio of workers to retirees falls from 6 to 1 to 2 to 1 over this period (a much larger decline than we will actually see), and retirees consume 75 percent as much as active workers, this rate of productivity growth would be sufficient to allow the income of both workers and retirees to rise more than eightfold.
The other presumed demographic crises have the same nature. Even modest rates of productivity growth can easily offset the impact of aging in raising the ratio of older dependents to workers. With 2 percent annual productivity growth (roughly the rate in the U.S. over the last two decades) output per worker would double over 35 years. If the ratio of workers to retirees fell from 3 to 1 to 2 to 1 over this period, both workers and retirees could enjoy an 80 percent increase in living standards. (This discussion ignores the fact that the ratio of younger dependents [children] to workers has fallen sharply in countries with declining populations. It also ignores ways in which declining population may improve living standards that are not picked up in standard measures of living standards such as less crowded transportation systems and less pollution.)
The Washington Post seems obsessed with pushing stories that old people will bankrupt the world. It had another front page article today warning that aging populations threaten disaster.
Among the lines in the article we are told that:
“China (1.5) is racing to get rich before it becomes old.” [The “1.5” refers to the birth rate per woman.]
It is difficult to see much of a race. China’s rate of annual productivity growth has been close to 8 percent over the last three decades. This means that output per worker has increased roughly tenfold over this period. If the ratio of workers to retirees falls from 6 to 1 to 2 to 1 over this period (a much larger decline than we will actually see), and retirees consume 75 percent as much as active workers, this rate of productivity growth would be sufficient to allow the income of both workers and retirees to rise more than eightfold.
The other presumed demographic crises have the same nature. Even modest rates of productivity growth can easily offset the impact of aging in raising the ratio of older dependents to workers. With 2 percent annual productivity growth (roughly the rate in the U.S. over the last two decades) output per worker would double over 35 years. If the ratio of workers to retirees fell from 3 to 1 to 2 to 1 over this period, both workers and retirees could enjoy an 80 percent increase in living standards. (This discussion ignores the fact that the ratio of younger dependents [children] to workers has fallen sharply in countries with declining populations. It also ignores ways in which declining population may improve living standards that are not picked up in standard measures of living standards such as less crowded transportation systems and less pollution.)
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Robert Samuelson told Washington Post readers that we cannot have large cuts in the military budget without jeopardizing the country’s security. He seems to have forgotten the country spent 3.0 percent of GDP on the military in 2000 and was projected to continue to spend at that level or less. If the country were to return military spending to this level it would save more than $2.6 trillion over the next decade, before counting interest savings.
Robert Samuelson told Washington Post readers that we cannot have large cuts in the military budget without jeopardizing the country’s security. He seems to have forgotten the country spent 3.0 percent of GDP on the military in 2000 and was projected to continue to spend at that level or less. If the country were to return military spending to this level it would save more than $2.6 trillion over the next decade, before counting interest savings.
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