The Post had a front page article that implied that we should be concerned about the possibility that GE and other companies were transferring sophisticated technologies to China. Actually, the same argument that holds the United States benefits from importing low cost manufactured goods from China would also hold that it benefits from importing low cost high tech products from China. The latter would put downward pressure on the wages of engineers and other highly-skilled workers, but lead to lower prices for high tech products and thereby free up money for other consumption.
It is interesting that the Post so explicitly expresses its concern, in the news section, about losing high skilled jobs due to trade, but applauds the loss of less-skilled skilled jobs.
The Post had a front page article that implied that we should be concerned about the possibility that GE and other companies were transferring sophisticated technologies to China. Actually, the same argument that holds the United States benefits from importing low cost manufactured goods from China would also hold that it benefits from importing low cost high tech products from China. The latter would put downward pressure on the wages of engineers and other highly-skilled workers, but lead to lower prices for high tech products and thereby free up money for other consumption.
It is interesting that the Post so explicitly expresses its concern, in the news section, about losing high skilled jobs due to trade, but applauds the loss of less-skilled skilled jobs.
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A Reuters article on plans by the European Union to impose a tax on foreign exchange transactions (actually the proposed tax would apply to a wide array of financial transactions, not just foreign exchange) reads like an editorial against such a tax. It tells readers that the tax could cause traders to leave the London market, that it would reduce liquidity and thereby increase volatility and also disrupt efforts to develop algorithms for intraday trading. It describes these as unintended consequences of the tax.
If it had talked to a proponent of the tax, she would have noted the size of the taxes being discussed would just raise transactions costs back to where they were in the 80s or 90s. The cost of trading has plummeted in the last 3 decades due to computers. This tax will simply reverse some of this decline. There was already an extremely well-developed market in foreign exchange in the 80s.
The effect of a tax on volatility is unclear. While it reduces the incentive for arbitrage, it will also make speculation less profitable. This could make large speculative swings of the sort that we have seen in financial markets in recent weeks less likely.
Finally, it is not clear why it views the fact that the tax will make it more difficult to construct trading algorithms as an unintended consequence. These algorithms may provide large profits to the people who develop them, but the benefits to the economy and society are likely to be near zero. If a transactions tax discourages skilled mathematicians and computer programmers from developing complex formulas for financial arbitrage and instead has them work in a productive area of the economy, then the tax will have been a great success.
[Addendum: Reuters does go a small bit of the way back toward saving its soul by running this column from my friend Mark Thoma.]
A Reuters article on plans by the European Union to impose a tax on foreign exchange transactions (actually the proposed tax would apply to a wide array of financial transactions, not just foreign exchange) reads like an editorial against such a tax. It tells readers that the tax could cause traders to leave the London market, that it would reduce liquidity and thereby increase volatility and also disrupt efforts to develop algorithms for intraday trading. It describes these as unintended consequences of the tax.
If it had talked to a proponent of the tax, she would have noted the size of the taxes being discussed would just raise transactions costs back to where they were in the 80s or 90s. The cost of trading has plummeted in the last 3 decades due to computers. This tax will simply reverse some of this decline. There was already an extremely well-developed market in foreign exchange in the 80s.
The effect of a tax on volatility is unclear. While it reduces the incentive for arbitrage, it will also make speculation less profitable. This could make large speculative swings of the sort that we have seen in financial markets in recent weeks less likely.
Finally, it is not clear why it views the fact that the tax will make it more difficult to construct trading algorithms as an unintended consequence. These algorithms may provide large profits to the people who develop them, but the benefits to the economy and society are likely to be near zero. If a transactions tax discourages skilled mathematicians and computer programmers from developing complex formulas for financial arbitrage and instead has them work in a productive area of the economy, then the tax will have been a great success.
[Addendum: Reuters does go a small bit of the way back toward saving its soul by running this column from my friend Mark Thoma.]
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Okay, that is just not true. Congress can do another big round of stimulus. It could mandate a reduction in the value of the dollar in order to boost net exports. Or it could push an aggressive work sharing program like the one that has led the unemployment rate to fall below pre-recession levels in Germany.
The Fed could target a long-term interest rate. For example it can set a 1.0 percent target for the 5-year Treasury rate. Or it could target a higher rate of inflation, committing itself to throw out enough reserves as necessary to raise the inflation rate to 4.0 percent, a policy that Bernanke advocated for Japan back when he was still a professor at Princeton.
It is simply wrong to claim, as NPR did in this piece, that there is nothing more than Congress and the Fed can do to boost the economy. If it wants to say that none of these measures are politically viable, that may well be a true statement. But then the problem is with the people who dominate politics in the country. It is a political problem, not an economic one and NPR should clearly identify it as such.
[Thanks to Jonathan Lundell.]
Okay, that is just not true. Congress can do another big round of stimulus. It could mandate a reduction in the value of the dollar in order to boost net exports. Or it could push an aggressive work sharing program like the one that has led the unemployment rate to fall below pre-recession levels in Germany.
The Fed could target a long-term interest rate. For example it can set a 1.0 percent target for the 5-year Treasury rate. Or it could target a higher rate of inflation, committing itself to throw out enough reserves as necessary to raise the inflation rate to 4.0 percent, a policy that Bernanke advocated for Japan back when he was still a professor at Princeton.
It is simply wrong to claim, as NPR did in this piece, that there is nothing more than Congress and the Fed can do to boost the economy. If it wants to say that none of these measures are politically viable, that may well be a true statement. But then the problem is with the people who dominate politics in the country. It is a political problem, not an economic one and NPR should clearly identify it as such.
[Thanks to Jonathan Lundell.]
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The NYT’s lead editorial told readers that:
“Congress and the White House have yet to figure out that the economy will not recover until housing recovers.”
It’s not clear what the paper means by this. The piece complains that “sales of existing homes fell in July by 3.5 percent, while prices were down 4.4 percent in July from a year earlier.”
If it means that prices must recover then it is looking in the wrong direction. House prices are still about 10 percent above their long-term trend level. In other words, the bubble has not yet fully deflated. If it has any reason for believing that the fundamentals of the housing market justify this sort of divergence from trend it is not clear what this could be. Certainly the near record vacancy rates (down somewhat from the 2009-2010 peaks) do not support the notion that prices are too low.
Also, even with the decline in existing home sales, the recent sales rate is still more than 1 million higher (@30 percent) than the mid-90s pre-bubble rate. So it is not clear what aspects of the housing market the NYT expects to see fixed.
In its list of remedies for underwater homeowners facing foreclosure the editorial missed the simplest one, giving foreclosed homeowners the right to stay in their house as renters paying the market rent. This could be passed into law at the state or federal level or implemented uniltaerally by Fannie and Freddie which are now seeing half of all foreclosed properties.
The right to rent plan involves no complex bureaucratic calculations, nor taxpayer dollars. There is no major moral hazard problem and no serious windfalls. In other words, it’s the sort of policy that has no chance in Washington.
The NYT’s lead editorial told readers that:
“Congress and the White House have yet to figure out that the economy will not recover until housing recovers.”
It’s not clear what the paper means by this. The piece complains that “sales of existing homes fell in July by 3.5 percent, while prices were down 4.4 percent in July from a year earlier.”
If it means that prices must recover then it is looking in the wrong direction. House prices are still about 10 percent above their long-term trend level. In other words, the bubble has not yet fully deflated. If it has any reason for believing that the fundamentals of the housing market justify this sort of divergence from trend it is not clear what this could be. Certainly the near record vacancy rates (down somewhat from the 2009-2010 peaks) do not support the notion that prices are too low.
Also, even with the decline in existing home sales, the recent sales rate is still more than 1 million higher (@30 percent) than the mid-90s pre-bubble rate. So it is not clear what aspects of the housing market the NYT expects to see fixed.
In its list of remedies for underwater homeowners facing foreclosure the editorial missed the simplest one, giving foreclosed homeowners the right to stay in their house as renters paying the market rent. This could be passed into law at the state or federal level or implemented uniltaerally by Fannie and Freddie which are now seeing half of all foreclosed properties.
The right to rent plan involves no complex bureaucratic calculations, nor taxpayer dollars. There is no major moral hazard problem and no serious windfalls. In other words, it’s the sort of policy that has no chance in Washington.
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The NYT reported that the Obama administration is pressuring Eric Schneiderman, New York’s attorney general, to agree to a settlement with the major banks over improper handling of foreclosures and mortgage servicing. The piece has this stunning statement:
“Mr. Donovan [housing secretary Shaun Donovan] defended his discussions with the attorney general, saying they were motivated by a desire to speed up help for troubled homeowners.”
The NYT reported that the Obama administration is pressuring Eric Schneiderman, New York’s attorney general, to agree to a settlement with the major banks over improper handling of foreclosures and mortgage servicing. The piece has this stunning statement:
“Mr. Donovan [housing secretary Shaun Donovan] defended his discussions with the attorney general, saying they were motivated by a desire to speed up help for troubled homeowners.”
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It is likely that almost no readers of the Post have much clue as to how large the $900 million appropriated for the country’s satellite program is relative to the budget or their tax bill. It comes to 0.025 percent of projected spending in 2012 or about $3 per person.
It is likely that almost no readers of the Post have much clue as to how large the $900 million appropriated for the country’s satellite program is relative to the budget or their tax bill. It comes to 0.025 percent of projected spending in 2012 or about $3 per person.
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Showing once again why it is known as “Fox on 15th Street,” the Washington Post headlined an article “Social Security crisis is worsening.” The subhead told readers, “rise in disability applications driving it to the verge of insolvency.”
Those who read the article carefully will discover that the “it” being driven to insolvency is the Social Security disability program, which is a bit more than one-tenth of the combined retirement, survivors and disability program that people usually think of as “Social Security.” The latest projections from the Congressional Budget Office show that the combined program will be fully solvent until 2038.
Even after this date, the program will still be able to pay 81 percent of scheduled benefits. Alternatively, if taxes were raised enough to make the program fully solvent, the necessary tax increase is equal to about 5 percent of projected wage growth over the next three decades. The Post doesn’t like to make these points because it doesn’t advance its agenda for cutting Social Security.
Showing once again why it is known as “Fox on 15th Street,” the Washington Post headlined an article “Social Security crisis is worsening.” The subhead told readers, “rise in disability applications driving it to the verge of insolvency.”
Those who read the article carefully will discover that the “it” being driven to insolvency is the Social Security disability program, which is a bit more than one-tenth of the combined retirement, survivors and disability program that people usually think of as “Social Security.” The latest projections from the Congressional Budget Office show that the combined program will be fully solvent until 2038.
Even after this date, the program will still be able to pay 81 percent of scheduled benefits. Alternatively, if taxes were raised enough to make the program fully solvent, the necessary tax increase is equal to about 5 percent of projected wage growth over the next three decades. The Post doesn’t like to make these points because it doesn’t advance its agenda for cutting Social Security.
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The Post gave Eric Cantor the opportunity to lay out his economic vision today. Let’s have a little fun seeing how many things he got wrong.
Cantor begins by telling us:
“Our country is facing two related but separate crises. The first is the federal government’s debt crisis, the result of decades of fiscal mismanagement by both political parties as well as unsustainable entitlement commitments.”
Debt crisis? Does Cantor mean the fact that we have to pay just over 2.0 percent interest on 10-year Treasury bonds, a post-depression low? Of course, there was a near debt crisis when the Republicans refused to raise the debt ceiling. If they had held to this position, then legally prohibiting payment of the debt can be viewed as a debt crisis, but this has nothing to do with the level of the debt or its sustainability.
As a practical matter, the debt-to-GDP ratio was actually relatively low prior to the downturn. It had been falling in the Clinton years, so the 90s should not be included in his list of “decades of fiscal mismanagement.” Even with the Bush tax cuts, the cost of the wars, and the Medicare drug benefit, the deficit was projected to be just 1.4 percent of GDP in 2009, until the collapse of the housing bubble brought down the economy.
Cantor then tells us:
“the Obama administration’s anti-business, hyper-regulatory, pro-tax agenda has fueled economic uncertainty and sent the message from the administration that ‘we want to make it harder to create jobs.'”
He then tells us about, “…the “Transport Rule,” which could eliminate thousands of jobs.” Hmmm, thousands of jobs. That’s not millions, hundreds of thousands or even tens of thousands. Back in the late 90s the economy was generating 3 million jobs a year or 250,000 a month. Cantor’s “thousands of jobs,” if accurate, would translate into one day’s job growth back then.
But Cantor then comes back with the “ozone regulation” which he tells us “would cost upward of $1 trillion and millions of jobs in the construction industry over the next decade.” It would be interesting to know where these numbers came from, perhaps they are somewhere near the story of creation in the bible.
Then we get:
“There is the president’s silence as the National Labor Relations Board seeks to prevent Boeing from opening a plant in South Carolina that would create thousands of jobs.”
No, this was about shifting jobs from plants that are unionized to plants that are not unionized. There was not an issue of net job creation, unless Cantor thinks that non-union workers are less efficient so that it takes more of them to build a plane.
Cantor next jumps back to taxes, complaining that these regulations:
“coupled with the president’s insistence on raising the top tax rate paid by individuals and small businesses, has resulted in a lag in growth that has added to the debt crisis, contributing to our nation’s credit downgrade.”
Yep, President Obama wants to raise the tax rate paid by the wealthy, a group which excludes the vast majority of small business owners, back to the level it was at when we were creating 3 million jobs a year. Clearly this is a job killer.
Oh yes, and the debt crisis has reappeared. It is featured again in the next paragraph:
“The debt crisis threatens our long-term future: the ability of our children and their children to have the same opportunities to succeed that this and previous generations have enjoyed. Republicans passed a budget this spring, written by Rep. Paul Ryan, that would address our challenges head-on by putting in place common-sense reforms to manage our debt over the short and long term.”
According to the Congressional Budget Office, the Ryan plan would increase the cost of buying Medicare equivalent insurance policies by $34 trillion over the program’s 75-year planning horizon. Note that this $34 trillion figure is the higher cost to the country. The total cost shift to future seniors (our children and their children) is $38 trillion.
Then we get another shot at Social Security, Medicare, and Medicaid:
“The president has acknowledged that without reform, spending on entitlement programs is unsustainable. But he has also made clear that he would never support the type of structural changes to Medicaid, Medicare and Social Security needed to make these programs solvent as envisioned in our budget.”
Mr. Cantor probably missed it, but Congress passed health care reform last year. According to the Medicare trustees, the bill eliminated more than 75 percent of Medicare’s long-term shortfall. That’s not 100 percent, but Cantor seems more than a bit off the mark when he complains that Obama “would never support the structural changes … needed to make these programs solvent,” at least in reference to Medicare.
Cantor probably also failed to notice that the Republican budget did not include any thing to improve Social Security’s long-term budget situation. This was no doubt an oversight.
For those keeping score, a tax increase that is equal to 5 percent of the wage growth projected over the next thirty years would be sufficient to keep the program fully solvent over its 75-year planning horizon. That doesn’t sound like an insoluble problem.
Cantor then concludes with a paean to growth. Yes, more growth would be better, but it’s not clear why anyone would think that Cantor’s path of tax cuts and lax regulation, which we just tried (remember George W. Bush?) would be the route to fast growth.
Okay, enough fun for now, I have work to do.
The Post gave Eric Cantor the opportunity to lay out his economic vision today. Let’s have a little fun seeing how many things he got wrong.
Cantor begins by telling us:
“Our country is facing two related but separate crises. The first is the federal government’s debt crisis, the result of decades of fiscal mismanagement by both political parties as well as unsustainable entitlement commitments.”
Debt crisis? Does Cantor mean the fact that we have to pay just over 2.0 percent interest on 10-year Treasury bonds, a post-depression low? Of course, there was a near debt crisis when the Republicans refused to raise the debt ceiling. If they had held to this position, then legally prohibiting payment of the debt can be viewed as a debt crisis, but this has nothing to do with the level of the debt or its sustainability.
As a practical matter, the debt-to-GDP ratio was actually relatively low prior to the downturn. It had been falling in the Clinton years, so the 90s should not be included in his list of “decades of fiscal mismanagement.” Even with the Bush tax cuts, the cost of the wars, and the Medicare drug benefit, the deficit was projected to be just 1.4 percent of GDP in 2009, until the collapse of the housing bubble brought down the economy.
Cantor then tells us:
“the Obama administration’s anti-business, hyper-regulatory, pro-tax agenda has fueled economic uncertainty and sent the message from the administration that ‘we want to make it harder to create jobs.'”
He then tells us about, “…the “Transport Rule,” which could eliminate thousands of jobs.” Hmmm, thousands of jobs. That’s not millions, hundreds of thousands or even tens of thousands. Back in the late 90s the economy was generating 3 million jobs a year or 250,000 a month. Cantor’s “thousands of jobs,” if accurate, would translate into one day’s job growth back then.
But Cantor then comes back with the “ozone regulation” which he tells us “would cost upward of $1 trillion and millions of jobs in the construction industry over the next decade.” It would be interesting to know where these numbers came from, perhaps they are somewhere near the story of creation in the bible.
Then we get:
“There is the president’s silence as the National Labor Relations Board seeks to prevent Boeing from opening a plant in South Carolina that would create thousands of jobs.”
No, this was about shifting jobs from plants that are unionized to plants that are not unionized. There was not an issue of net job creation, unless Cantor thinks that non-union workers are less efficient so that it takes more of them to build a plane.
Cantor next jumps back to taxes, complaining that these regulations:
“coupled with the president’s insistence on raising the top tax rate paid by individuals and small businesses, has resulted in a lag in growth that has added to the debt crisis, contributing to our nation’s credit downgrade.”
Yep, President Obama wants to raise the tax rate paid by the wealthy, a group which excludes the vast majority of small business owners, back to the level it was at when we were creating 3 million jobs a year. Clearly this is a job killer.
Oh yes, and the debt crisis has reappeared. It is featured again in the next paragraph:
“The debt crisis threatens our long-term future: the ability of our children and their children to have the same opportunities to succeed that this and previous generations have enjoyed. Republicans passed a budget this spring, written by Rep. Paul Ryan, that would address our challenges head-on by putting in place common-sense reforms to manage our debt over the short and long term.”
According to the Congressional Budget Office, the Ryan plan would increase the cost of buying Medicare equivalent insurance policies by $34 trillion over the program’s 75-year planning horizon. Note that this $34 trillion figure is the higher cost to the country. The total cost shift to future seniors (our children and their children) is $38 trillion.
Then we get another shot at Social Security, Medicare, and Medicaid:
“The president has acknowledged that without reform, spending on entitlement programs is unsustainable. But he has also made clear that he would never support the type of structural changes to Medicaid, Medicare and Social Security needed to make these programs solvent as envisioned in our budget.”
Mr. Cantor probably missed it, but Congress passed health care reform last year. According to the Medicare trustees, the bill eliminated more than 75 percent of Medicare’s long-term shortfall. That’s not 100 percent, but Cantor seems more than a bit off the mark when he complains that Obama “would never support the structural changes … needed to make these programs solvent,” at least in reference to Medicare.
Cantor probably also failed to notice that the Republican budget did not include any thing to improve Social Security’s long-term budget situation. This was no doubt an oversight.
For those keeping score, a tax increase that is equal to 5 percent of the wage growth projected over the next thirty years would be sufficient to keep the program fully solvent over its 75-year planning horizon. That doesn’t sound like an insoluble problem.
Cantor then concludes with a paean to growth. Yes, more growth would be better, but it’s not clear why anyone would think that Cantor’s path of tax cuts and lax regulation, which we just tried (remember George W. Bush?) would be the route to fast growth.
Okay, enough fun for now, I have work to do.
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It happens to be true, since the dollar will almost certainly fall if they ever choose to unload their bonds. However more importantly, buying up government bonds is the way that China props up the value of the dollar against the yuan. Ostensibly the Obama administration’s policy is that it wants the dollar to fall against the yuan. So why isn’t Biden encouraging China not to buy up so many government bonds, and why isn’t the Post asking this question?
It happens to be true, since the dollar will almost certainly fall if they ever choose to unload their bonds. However more importantly, buying up government bonds is the way that China props up the value of the dollar against the yuan. Ostensibly the Obama administration’s policy is that it wants the dollar to fall against the yuan. So why isn’t Biden encouraging China not to buy up so many government bonds, and why isn’t the Post asking this question?
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CNBC told its audience that 56 percent of the economists who responded to a National Association of Business Economists Survey thought that spending cuts were better than tax increases for reducing the deficit. It would have been worth reminding people that almost all of these people were too incompetent to see the $8 trillion housing bubble that crashed and wrecked the economy.
This is an important piece of information since there is no reason to assume that these economists know any more about the economy than they did four years ago.
CNBC told its audience that 56 percent of the economists who responded to a National Association of Business Economists Survey thought that spending cuts were better than tax increases for reducing the deficit. It would have been worth reminding people that almost all of these people were too incompetent to see the $8 trillion housing bubble that crashed and wrecked the economy.
This is an important piece of information since there is no reason to assume that these economists know any more about the economy than they did four years ago.
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