The prospect of cutting Social Security and Medicare benefits really excites the folks who put out the Washington Post. That’s why the paper, which completely missed the record share of corporate profits in GDP reported by the Commerce Department on Friday, referred to the desire of Republicans to have a constitutional amendment to “keep future sessions of Congress in line.”
A real newspaper would have referred to Republican efforts to keep Congress from spending money. But the Post can’t keep its enthusiasm for cuts from dripping all over its reporting. Therefore it just tells readers — in the news section — that Congress has been out of line.
The prospect of cutting Social Security and Medicare benefits really excites the folks who put out the Washington Post. That’s why the paper, which completely missed the record share of corporate profits in GDP reported by the Commerce Department on Friday, referred to the desire of Republicans to have a constitutional amendment to “keep future sessions of Congress in line.”
A real newspaper would have referred to Republican efforts to keep Congress from spending money. But the Post can’t keep its enthusiasm for cuts from dripping all over its reporting. Therefore it just tells readers — in the news section — that Congress has been out of line.
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Okay, the country wasn’t exactly sleeping, it was watching the Boehner-Tea Party charade about whether we should default on the national debt. While this process captivated the nation, the Commerce Department released new data on GDP. The pathetic second quarter GDP number, combined with the sharp downward revision to the first quarter got some attention. The 0.8 average growth rate over the first half of the year is well below the 2.5 percent rate needed to keep even with the rate of growth of the labor force. This means that rather than making up ground lost in the recession, we are actually going the wrong way. The economy is falling further below its potential and unemployment is likely to continue to rise.
While this situation got some attention in the news reports, all the accounts I saw completely missed the upward revision to profits. The revised data showed sharply higher profits for both 2009 and 2010. In fact, in the revised data, profits accounted for 23.8 percent of income in the domestic corporate sector in 2010. This is more than a full percentage above the previous peak. Within the corporate sector, the financial industry is the big winner, accounting for 31.7 percent of corporate profits in 2010. This movement in profits is no doubt attributable to all the regulations and taxes imposed by President Obama.
Anyhow, you didn’t hear about this from the media because they had to present you with the latest from Tea Party gang, but there are some people who do actually look at economic data.
Okay, the country wasn’t exactly sleeping, it was watching the Boehner-Tea Party charade about whether we should default on the national debt. While this process captivated the nation, the Commerce Department released new data on GDP. The pathetic second quarter GDP number, combined with the sharp downward revision to the first quarter got some attention. The 0.8 average growth rate over the first half of the year is well below the 2.5 percent rate needed to keep even with the rate of growth of the labor force. This means that rather than making up ground lost in the recession, we are actually going the wrong way. The economy is falling further below its potential and unemployment is likely to continue to rise.
While this situation got some attention in the news reports, all the accounts I saw completely missed the upward revision to profits. The revised data showed sharply higher profits for both 2009 and 2010. In fact, in the revised data, profits accounted for 23.8 percent of income in the domestic corporate sector in 2010. This is more than a full percentage above the previous peak. Within the corporate sector, the financial industry is the big winner, accounting for 31.7 percent of corporate profits in 2010. This movement in profits is no doubt attributable to all the regulations and taxes imposed by President Obama.
Anyhow, you didn’t hear about this from the media because they had to present you with the latest from Tea Party gang, but there are some people who do actually look at economic data.
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The NYT again complained in its news section that Congress did not make cuts to Social Security, Medicare, and Medicaid, telling readers that the debt reduction plans under consideration “defer tough decisions.” (Here’s the previous editorial.) It then turns to Robert Bixby, the executive director of the Peter Peterson-funded Concord Coalition, to tell readers that the real budget problems are the entitlement programs, Medicare, Medicaid, and Social Security.
Of course the reality is that Social Security is projected to be fully solvent for the next quarter century with no changes whatsoever. Even after that date the trustees’ projections show that it will be able to pay almost 80 percent of benefits indefinitely.
Medicare and Medicaid show much more rapid cost growth, however the problem with these programs is the projected growth of private sector health care costs. The United States already pays more than twice as much per person for health care as other wealthy countries. This gap is projected to grow in the decades ahead. If the health care system is not fixed it will have a devastating impact on the economy regardless of what is done with the public sector health care program. By contrast, if we fix our health care system, then there is no long-run deficit problem.
The NYT again complained in its news section that Congress did not make cuts to Social Security, Medicare, and Medicaid, telling readers that the debt reduction plans under consideration “defer tough decisions.” (Here’s the previous editorial.) It then turns to Robert Bixby, the executive director of the Peter Peterson-funded Concord Coalition, to tell readers that the real budget problems are the entitlement programs, Medicare, Medicaid, and Social Security.
Of course the reality is that Social Security is projected to be fully solvent for the next quarter century with no changes whatsoever. Even after that date the trustees’ projections show that it will be able to pay almost 80 percent of benefits indefinitely.
Medicare and Medicaid show much more rapid cost growth, however the problem with these programs is the projected growth of private sector health care costs. The United States already pays more than twice as much per person for health care as other wealthy countries. This gap is projected to grow in the decades ahead. If the health care system is not fixed it will have a devastating impact on the economy regardless of what is done with the public sector health care program. By contrast, if we fix our health care system, then there is no long-run deficit problem.
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The NYT headlined a section that gave some facts on the size of the debt, its holders, and the reaching of the debt ceiling, “Charting the American Debt Crisis.” Actually, there is no debt crisis. Investors were willing to lend the U.S. government trillions of dollars at very low interest rates. There is no evidence that this was about to change any time soon. The United States and other countries have had much higher debt burdens and still faced no problem borrowing.
The problems at the moment stem from the refusal of Congress to raise the debt ceiling. This would be like a family where one member burned the check book (assuming no Internet banking). The problem is arranging to get new checks, not that there is no money in the account. The NYT should be able to keep this straight.
The NYT headlined a section that gave some facts on the size of the debt, its holders, and the reaching of the debt ceiling, “Charting the American Debt Crisis.” Actually, there is no debt crisis. Investors were willing to lend the U.S. government trillions of dollars at very low interest rates. There is no evidence that this was about to change any time soon. The United States and other countries have had much higher debt burdens and still faced no problem borrowing.
The problems at the moment stem from the refusal of Congress to raise the debt ceiling. This would be like a family where one member burned the check book (assuming no Internet banking). The problem is arranging to get new checks, not that there is no money in the account. The NYT should be able to keep this straight.
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The NYT told us “it’s the demography stupid” as the explanation for the economic crisis afflicting the United States and the world. This piece is truly remarkable for its ability to confuse just about every basic economic fact relevant to the crisis.
The fundamental problem facing the U.S. and European economies is the lack of sufficient demand to fully employ their workers and their productive capacity. There are few economists who dispute that if there were more demand, there would be more employment and output.
The key feature of the “demography stupid” story is that the ratio of the elderly to the working population is too high. This means that workers do not have much left in wages for themselves after the taxes or capital earnings of the elderly are pulled out of the economy.
Of course this is 180 degrees at odd with the problem the U.S. and European economies face. If the elderly suddenly went on a huge buying binge it would create millions of jobs for younger workers. In the current economic situation the young would be better off if the elderly either had more money or there were more elderly spending money.
The article also seems oblivious to productivity growth which is by far the most important factor determining living standards. Increases in productivity, which have averaged more than 2.0 percent annually in the United States over the last 15 years, swamp the impact of changing demographics. This is the reason why the United States has been able to have substantial increases in living standards even as it has experienced a continual rise in the ratio of retirees to workers (although this has been partially offset by declines in the ratio of children to workers).
The failure to understand productivity growth also leads to the bizarre claim that China faces a problem because of its slow growing population. China has been experiencing productivity growth in excess of 7 percent annually. At this rate output per worker will nearly quadruple after 20 years.
With this pace of productivity growth, if workers were taxed to the extent necessary to provide retirees with incomes equal to 70 percent of the before-tax wage of the average worker, after-tax wages could still quintuple over 30 years even if the ratio of workers to retirees dropped from 5 to 2 over this period. This is a much faster drop in the ratio than any country has ever experienced. People writing on economic issues for the NYT should know about productivity growth.
This piece also seems to have little understanding of the impact of population growth on living standards. People who have heard of global warming recognize that larger populations will make it more difficult to limit greenhouse gas emissions. Countries that have lower population growth, or even negative population growth, will find it easier to hit emission targets than countries with rapidly growing populations.
Lower population growth also contributes to well-being in ways that are often not accurately measured in national income data. For example, public transportation and recreational facilities are likely to be less crowded. We know that people are willing to pay more for less crowded planes, trains, buses, or beaches, however this quality improvement is not picked up in most price indexes.
Finally, it is striking that the piece relies on former Treasury Secretary and top Citigroup executive Robert Rubin as an authority on this issue. Mr. Rubin is best known for putting the U.S. on a high dollar path that led to the enormous trade deficit and the huge economic imbalances that eventually crashed the economy. He also pushed for the deregulation of the financial industry, which helped to facilitate the financial crisis. As a top executive of Citigroup he personally pocketed over $100 million dollars as the bank plunged into insolvency, eventually requiring multiple bailouts from taxpayers. This is not the sort of person who would usually be presented as an authority.
The NYT told us “it’s the demography stupid” as the explanation for the economic crisis afflicting the United States and the world. This piece is truly remarkable for its ability to confuse just about every basic economic fact relevant to the crisis.
The fundamental problem facing the U.S. and European economies is the lack of sufficient demand to fully employ their workers and their productive capacity. There are few economists who dispute that if there were more demand, there would be more employment and output.
The key feature of the “demography stupid” story is that the ratio of the elderly to the working population is too high. This means that workers do not have much left in wages for themselves after the taxes or capital earnings of the elderly are pulled out of the economy.
Of course this is 180 degrees at odd with the problem the U.S. and European economies face. If the elderly suddenly went on a huge buying binge it would create millions of jobs for younger workers. In the current economic situation the young would be better off if the elderly either had more money or there were more elderly spending money.
The article also seems oblivious to productivity growth which is by far the most important factor determining living standards. Increases in productivity, which have averaged more than 2.0 percent annually in the United States over the last 15 years, swamp the impact of changing demographics. This is the reason why the United States has been able to have substantial increases in living standards even as it has experienced a continual rise in the ratio of retirees to workers (although this has been partially offset by declines in the ratio of children to workers).
The failure to understand productivity growth also leads to the bizarre claim that China faces a problem because of its slow growing population. China has been experiencing productivity growth in excess of 7 percent annually. At this rate output per worker will nearly quadruple after 20 years.
With this pace of productivity growth, if workers were taxed to the extent necessary to provide retirees with incomes equal to 70 percent of the before-tax wage of the average worker, after-tax wages could still quintuple over 30 years even if the ratio of workers to retirees dropped from 5 to 2 over this period. This is a much faster drop in the ratio than any country has ever experienced. People writing on economic issues for the NYT should know about productivity growth.
This piece also seems to have little understanding of the impact of population growth on living standards. People who have heard of global warming recognize that larger populations will make it more difficult to limit greenhouse gas emissions. Countries that have lower population growth, or even negative population growth, will find it easier to hit emission targets than countries with rapidly growing populations.
Lower population growth also contributes to well-being in ways that are often not accurately measured in national income data. For example, public transportation and recreational facilities are likely to be less crowded. We know that people are willing to pay more for less crowded planes, trains, buses, or beaches, however this quality improvement is not picked up in most price indexes.
Finally, it is striking that the piece relies on former Treasury Secretary and top Citigroup executive Robert Rubin as an authority on this issue. Mr. Rubin is best known for putting the U.S. on a high dollar path that led to the enormous trade deficit and the huge economic imbalances that eventually crashed the economy. He also pushed for the deregulation of the financial industry, which helped to facilitate the financial crisis. As a top executive of Citigroup he personally pocketed over $100 million dollars as the bank plunged into insolvency, eventually requiring multiple bailouts from taxpayers. This is not the sort of person who would usually be presented as an authority.
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The Washington Post once ran a front page piece questioning whether people who earned $250,000 a year, President Obama’s cutoff for his no tax hike pledge, were really rich. However, it also features Robert Samuelson on its opinion page telling readers that seniors with income of $30,000 a year are wealthy. I’m not kidding.
In a piece titled “Why Are We In This Debt Fix? It’s the elderly stupid,” Samuelson tells readers:
“some elderly live hand-to-mouth; many more are comfortable, and some are wealthy. The Kaiser Family Foundation reports the following for Medicare beneficiaries in 2010: 25 percent had savings and retirement accounts averaging $207,000 or more.”
Let’s see, we have retirees who have their Social Security checks, plus a stash of $207,000. If someone at age 62 were to take that $207,000 and buy an annuity this money would get them about $15,000 a year. Add in $14,000 from Social Security and they are living the good life on $29,000 a year. And remember, 75 percent of the elderly have less than this.
To be fair, many of the people with $207,000 in savings will be older than 62 so their money will go further, but it is hard to believe that anyone can think of this as a cutoff for being wealthy, or at least anyone other than Robert Samuelson and his colleagues at the Washington Post.
The Washington Post once ran a front page piece questioning whether people who earned $250,000 a year, President Obama’s cutoff for his no tax hike pledge, were really rich. However, it also features Robert Samuelson on its opinion page telling readers that seniors with income of $30,000 a year are wealthy. I’m not kidding.
In a piece titled “Why Are We In This Debt Fix? It’s the elderly stupid,” Samuelson tells readers:
“some elderly live hand-to-mouth; many more are comfortable, and some are wealthy. The Kaiser Family Foundation reports the following for Medicare beneficiaries in 2010: 25 percent had savings and retirement accounts averaging $207,000 or more.”
Let’s see, we have retirees who have their Social Security checks, plus a stash of $207,000. If someone at age 62 were to take that $207,000 and buy an annuity this money would get them about $15,000 a year. Add in $14,000 from Social Security and they are living the good life on $29,000 a year. And remember, 75 percent of the elderly have less than this.
To be fair, many of the people with $207,000 in savings will be older than 62 so their money will go further, but it is hard to believe that anyone can think of this as a cutoff for being wealthy, or at least anyone other than Robert Samuelson and his colleagues at the Washington Post.
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NPR misrepresented the nature of the crisis in a comment introducing a Morning Edition segment on the pending default of Jefferson County, Alabama. It referred to the country suffering a debt crisis. This is not accurate.
The problem is one of Congress refusing to raise the debt ceiling. This would be comparable to someone losing their checkbook even if they had still had $20,000 in their account. They may face a problem getting money out of their account until they get more checks (or learn on-line banking), but there is no problem of a lack of a funds.
The United States will be in a comparable situation after August 2. No one thinks that it would have problems getting the money needed to pay its bills by borrowing in financial markets. The only problem is that Congress will have denied the government the legal authority to pay its bills.
NPR misrepresented the nature of the crisis in a comment introducing a Morning Edition segment on the pending default of Jefferson County, Alabama. It referred to the country suffering a debt crisis. This is not accurate.
The problem is one of Congress refusing to raise the debt ceiling. This would be comparable to someone losing their checkbook even if they had still had $20,000 in their account. They may face a problem getting money out of their account until they get more checks (or learn on-line banking), but there is no problem of a lack of a funds.
The United States will be in a comparable situation after August 2. No one thinks that it would have problems getting the money needed to pay its bills by borrowing in financial markets. The only problem is that Congress will have denied the government the legal authority to pay its bills.
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It seems unlikely that many people, even among the relatively well-educated readers of the New York Times and Washington Post, have much clue as to how much money is at stake in the battle over the debt ceiling. As some points of reference, the government is projected to spend roughly $46 trillion over the next decade. This means that $2.2 trillion in cuts would be around 4.8 percent of projected spending.
However, the impact is likely to be much larger on specific portions of the budget. If Social Security, Medicare, and Medicaid are left off the table, and most of the cuts come from the discretionary portion of the budget (which includes most government investment in infrastructure, education and research), then $2.2 trillion in cuts would come to 15.2 percent of projected spending. There is also the question of the division of the cuts between domestic discretionary spending and military spending. In the extreme case where all the cuts came from the domestic side of the budget, the cuts would be 32.8 percent of projected spending.
Finally, it is worth asking how large these proposed cuts are relative to the size of the economy. GDP is projected to be almost $200 trillion over the next decade. This means that if the government could raise taxes by an amount equal to 1.1 percent of projected income it would raise enough money to the spending cuts being debated by Congress.
It seems unlikely that many people, even among the relatively well-educated readers of the New York Times and Washington Post, have much clue as to how much money is at stake in the battle over the debt ceiling. As some points of reference, the government is projected to spend roughly $46 trillion over the next decade. This means that $2.2 trillion in cuts would be around 4.8 percent of projected spending.
However, the impact is likely to be much larger on specific portions of the budget. If Social Security, Medicare, and Medicaid are left off the table, and most of the cuts come from the discretionary portion of the budget (which includes most government investment in infrastructure, education and research), then $2.2 trillion in cuts would come to 15.2 percent of projected spending. There is also the question of the division of the cuts between domestic discretionary spending and military spending. In the extreme case where all the cuts came from the domestic side of the budget, the cuts would be 32.8 percent of projected spending.
Finally, it is worth asking how large these proposed cuts are relative to the size of the economy. GDP is projected to be almost $200 trillion over the next decade. This means that if the government could raise taxes by an amount equal to 1.1 percent of projected income it would raise enough money to the spending cuts being debated by Congress.
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The major credit rating agencies, Moody’s, Standard and Poors, and Fitch are best known for rating hundreds of billions of dollars of subprime mortgage-backed securities as investment grade. (They got paid tens of millions of dollars for these ratings.) They are also famous for missing the shipwrecks at Bear Stearns, Lehman, Enron and many other major corporate bankruptcies.
This is important because NPR told listeners this morning that President Obama had to fear not just a default, but also a downgrading from the credit rating agencies. It then had a quote from Jim Kessler, the vice-president of Third Way, a Wall Street-backed think tank. Kessler told listeners that a country with a second-rate credit rating is a second rate country and that a downgrading would be a serious liability for President Obama in his re-election campaign.
This one is pretty far removed from reality even for a major news organization. No poll has ever showed a credit rating to be a major factor in determining voters’ decisions. It is difficult to imagine that people who would have otherwise voted for President Obama would instead vote for his Republican opponent because one or more credit rating agencies has downgraded the country’s debt.
As a practical matter, the financial markets completely ignored the downgrading of Japan’s debt in 2002. It can still pay less than 1.5 percent interest on its 10-year bonds. It is likely that the financial markets respect for the credit rating agencies’ judgment has not increased since the collapse of the housing bubble. It is also worth noting that the credit rating agencies are seeking politicians’ support in minimizing the impact of the regulations in the Dodd-Frank bill.
This piece also bizarrely asserted that a debt reduction package that included “changes” to Social Security, Medicare, and Medicaid would help President Obama in his re-election campaign. First, the proposals on the table involve cuts to these programs. Politicians use the term “changes” to try to conceal the fact that they want to cut these extremely popular programs. Serious news organizations try to inform their audiences, they are not supposed to use politicians’ euphemisms to help conceal what is at issue.
This raises the second point. NPR presented no evidence whatsoever that President Obama would gain electorally if he were to cut programs that draw overwhelming support not only from Democrats, but also Independents and Republicans. If it has some basis for this assertion, it would be interesting to know what it is.
The major credit rating agencies, Moody’s, Standard and Poors, and Fitch are best known for rating hundreds of billions of dollars of subprime mortgage-backed securities as investment grade. (They got paid tens of millions of dollars for these ratings.) They are also famous for missing the shipwrecks at Bear Stearns, Lehman, Enron and many other major corporate bankruptcies.
This is important because NPR told listeners this morning that President Obama had to fear not just a default, but also a downgrading from the credit rating agencies. It then had a quote from Jim Kessler, the vice-president of Third Way, a Wall Street-backed think tank. Kessler told listeners that a country with a second-rate credit rating is a second rate country and that a downgrading would be a serious liability for President Obama in his re-election campaign.
This one is pretty far removed from reality even for a major news organization. No poll has ever showed a credit rating to be a major factor in determining voters’ decisions. It is difficult to imagine that people who would have otherwise voted for President Obama would instead vote for his Republican opponent because one or more credit rating agencies has downgraded the country’s debt.
As a practical matter, the financial markets completely ignored the downgrading of Japan’s debt in 2002. It can still pay less than 1.5 percent interest on its 10-year bonds. It is likely that the financial markets respect for the credit rating agencies’ judgment has not increased since the collapse of the housing bubble. It is also worth noting that the credit rating agencies are seeking politicians’ support in minimizing the impact of the regulations in the Dodd-Frank bill.
This piece also bizarrely asserted that a debt reduction package that included “changes” to Social Security, Medicare, and Medicaid would help President Obama in his re-election campaign. First, the proposals on the table involve cuts to these programs. Politicians use the term “changes” to try to conceal the fact that they want to cut these extremely popular programs. Serious news organizations try to inform their audiences, they are not supposed to use politicians’ euphemisms to help conceal what is at issue.
This raises the second point. NPR presented no evidence whatsoever that President Obama would gain electorally if he were to cut programs that draw overwhelming support not only from Democrats, but also Independents and Republicans. If it has some basis for this assertion, it would be interesting to know what it is.
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The evidence suggests that he is. He gives yet another of his diatribes about the need to cut Medicare, Medicaid, and Social Security in order to advance his grand agenda for the country. Of course Social Security is financed by its own designated tax and is projected to be fully solvent for the next quarter century, so it is a bit bizarre to have this one on the list.
More importantly, the entire budget problem is the result of a broken health care system. This is why serious people point to the need to fix the health care system, which is the real source of the country’s projected long-term budget problem. Of course the current shortfall is the result of the collapse of the housing bubble. But Friedman has not heard about that.
The evidence suggests that he is. He gives yet another of his diatribes about the need to cut Medicare, Medicaid, and Social Security in order to advance his grand agenda for the country. Of course Social Security is financed by its own designated tax and is projected to be fully solvent for the next quarter century, so it is a bit bizarre to have this one on the list.
More importantly, the entire budget problem is the result of a broken health care system. This is why serious people point to the need to fix the health care system, which is the real source of the country’s projected long-term budget problem. Of course the current shortfall is the result of the collapse of the housing bubble. But Friedman has not heard about that.
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