If they had, they would have mentioned it in the context of Indiana Governor Mitch Daniels’ comparison of the Bush era deficits to the current deficit. Daniels, who was director of the Office of Management and Budget under President Bush, made the comparison in saying that the deficits that he presided over in this position were small compared to current deficit.
This is true, but the reason is that the recession created by the collapse of the housing bubble was much deeper than the recession created by the collapse of the stock market bubble that President Bush faced when he took office. Not mentioning this fact is like blaming a city for its excessive use of water, without mentioning that it was combating a major forest fire. This is an important piece of information that should have been given to readers.
If they had, they would have mentioned it in the context of Indiana Governor Mitch Daniels’ comparison of the Bush era deficits to the current deficit. Daniels, who was director of the Office of Management and Budget under President Bush, made the comparison in saying that the deficits that he presided over in this position were small compared to current deficit.
This is true, but the reason is that the recession created by the collapse of the housing bubble was much deeper than the recession created by the collapse of the stock market bubble that President Bush faced when he took office. Not mentioning this fact is like blaming a city for its excessive use of water, without mentioning that it was combating a major forest fire. This is an important piece of information that should have been given to readers.
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Robert Samuelson decided to lecture President Obama on being an adult today. He wants President Obama to take big steps to reduce the budget deficit. Interestingly, all of the ways that Samuelson suggests for reducing the budget deficit, such as cutting Social Security and Medicare benefits or raising gas taxes, hurt middle income people. Apparently, this is Samuelson’s view of what adults do.
Increased taxes on the rich are not on his list nor are taxes on financial speculation. These might seem obvious ways to reduce the deficit since the share of the wealthy in national income has increased by so much in the last decade as has the financial sector’s share of total output. But Samuelson apparently does not believe that adults tax rich people or the financial industry. It also doesn’t seem as though adults talk about cutting the military budget, since this doesn’t come up in Samuelson’s article either. Nor does constraining health care costs, which is by far the most important contributor to the country’s projected long-term deficit problem.
In criticizing President Obama for not doing anything about the deficit Samuelson apparently has not noticed that if President Obama’s health care reform is left in place it is projected to do a great deal to reduce future deficits. CBO’s extended baseline shows spending, measured as a share of GDP, increasing by roughly 15 percent over the next 25 years, not the one-third claimed by Samuelson. This extended baseline assumes that the law is followed.
Robert Samuelson decided to lecture President Obama on being an adult today. He wants President Obama to take big steps to reduce the budget deficit. Interestingly, all of the ways that Samuelson suggests for reducing the budget deficit, such as cutting Social Security and Medicare benefits or raising gas taxes, hurt middle income people. Apparently, this is Samuelson’s view of what adults do.
Increased taxes on the rich are not on his list nor are taxes on financial speculation. These might seem obvious ways to reduce the deficit since the share of the wealthy in national income has increased by so much in the last decade as has the financial sector’s share of total output. But Samuelson apparently does not believe that adults tax rich people or the financial industry. It also doesn’t seem as though adults talk about cutting the military budget, since this doesn’t come up in Samuelson’s article either. Nor does constraining health care costs, which is by far the most important contributor to the country’s projected long-term deficit problem.
In criticizing President Obama for not doing anything about the deficit Samuelson apparently has not noticed that if President Obama’s health care reform is left in place it is projected to do a great deal to reduce future deficits. CBO’s extended baseline shows spending, measured as a share of GDP, increasing by roughly 15 percent over the next 25 years, not the one-third claimed by Samuelson. This extended baseline assumes that the law is followed.
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The Washington Post has frequently editorialized against welfare state measures in both Europe and the United States. It does not hesitate to use its news section to advance its editorial position. It did so today with a front page article stating that the welfare state benefits that Europeans have come to expect:
“increasingly appear to be luxuries the continent can no longer afford.”
The article includes a large number of inaccurate assertions to try to make this case. First, it is important to note that Europe is getting richer, not poorer. Every year the productivity of its workforce increases by approximately 1.5 percent. This means that each worker is producing 1.5 percent more for each hour of work. With productivity growing through time it is difficult to see why Europe would be less able to afford a welfare state in the future than it is today.
The article also cites globalization as a reason that Europe will be unable to afford a welfare state. Again, globalization is supposed to make countries richer, not poorer, so it is difficult to see why increased opportunities from trade should make a welfare state less affordable.
The article also points to the economic crisis as a reason that countries can no longer afford the welfare state. This is very confused thinking. The economic crisis stems from inadequate demand. The demand that was being driven by the housing bubbles in the United States and Europe disappeared with the collapse of these bubbles.
The current problem facing the United States and Europe is too little demand, not too much. Welfare state supports help to increase demand and generate more employment and output. The Post would have a better argument if Europe faced too much demand generating shortages and inflation — the opposite of the situation it faces today.
The article makes fundamental mistakes in logic elsewhere as well. It tells readers that:
“an hour of work costs $43 on average in France, compared with $36 in neighboring countries that also use the European currency, the euro, giving those other countries, particularly Germany, the edge in globalized competition.”
Actually, whether or not France can support paying its factory workers an average of $43 in compensation depends on their relative productivity. There are many workers who get much higher pay. For example, many Wall Street executives get compensated at the rate of more than $1000 an hour. However, in the current system, their employers can apparently make a profit paying these wages. Since France maintains near balanced trade (unlike the U.S., which has a large deficit), it seems that its wages are competitive.
The article also attributes an obviously untrue assertion to an economist featured in the piece:
“As a result, he [French economist Michel Godet] said, French workers on average show up at the office or factory 620 hours a year, compared with about 700 in Germany and 870 in the United States.” These numbers would be approximately accurate if 1000 was added to each one.
The Washington Post has frequently editorialized against welfare state measures in both Europe and the United States. It does not hesitate to use its news section to advance its editorial position. It did so today with a front page article stating that the welfare state benefits that Europeans have come to expect:
“increasingly appear to be luxuries the continent can no longer afford.”
The article includes a large number of inaccurate assertions to try to make this case. First, it is important to note that Europe is getting richer, not poorer. Every year the productivity of its workforce increases by approximately 1.5 percent. This means that each worker is producing 1.5 percent more for each hour of work. With productivity growing through time it is difficult to see why Europe would be less able to afford a welfare state in the future than it is today.
The article also cites globalization as a reason that Europe will be unable to afford a welfare state. Again, globalization is supposed to make countries richer, not poorer, so it is difficult to see why increased opportunities from trade should make a welfare state less affordable.
The article also points to the economic crisis as a reason that countries can no longer afford the welfare state. This is very confused thinking. The economic crisis stems from inadequate demand. The demand that was being driven by the housing bubbles in the United States and Europe disappeared with the collapse of these bubbles.
The current problem facing the United States and Europe is too little demand, not too much. Welfare state supports help to increase demand and generate more employment and output. The Post would have a better argument if Europe faced too much demand generating shortages and inflation — the opposite of the situation it faces today.
The article makes fundamental mistakes in logic elsewhere as well. It tells readers that:
“an hour of work costs $43 on average in France, compared with $36 in neighboring countries that also use the European currency, the euro, giving those other countries, particularly Germany, the edge in globalized competition.”
Actually, whether or not France can support paying its factory workers an average of $43 in compensation depends on their relative productivity. There are many workers who get much higher pay. For example, many Wall Street executives get compensated at the rate of more than $1000 an hour. However, in the current system, their employers can apparently make a profit paying these wages. Since France maintains near balanced trade (unlike the U.S., which has a large deficit), it seems that its wages are competitive.
The article also attributes an obviously untrue assertion to an economist featured in the piece:
“As a result, he [French economist Michel Godet] said, French workers on average show up at the office or factory 620 hours a year, compared with about 700 in Germany and 870 in the United States.” These numbers would be approximately accurate if 1000 was added to each one.
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The LA Times told readers that:
“Congress is on its first recess since Republican leaders unveiled a plan to end the federal deficit by dramatically changing Medicare, cutting other government programs and reducing taxes.”
Actually the Republicans never produced a plan to “end the federal deficit.”
They produced a plan that promised large tax cuts but did not identify any of the taxes that would have to be raised to offset the lost revenue. This is like saying they had a plan to fly to moon because they said they would build a rocket. The whole point is the specifics. How would they build a rocket? How would they raise taxes to meet their revenue targets?
It would have also been worth mentioning that the Congressional Budget Office projections for the Ryan plan imply that it would increase the cost of buying Medicare equivalent insurance policies by $30 trillion over the program’s 75-year planning period. This is approximately 6 times the size of the projected Social Security shortfall and comes to almost $100,000 in additional costs for every man, woman, and child in the country. This money would be a transfer from retirees to the insurance and health care industries under the Ryan plan.
The LA Times told readers that:
“Congress is on its first recess since Republican leaders unveiled a plan to end the federal deficit by dramatically changing Medicare, cutting other government programs and reducing taxes.”
Actually the Republicans never produced a plan to “end the federal deficit.”
They produced a plan that promised large tax cuts but did not identify any of the taxes that would have to be raised to offset the lost revenue. This is like saying they had a plan to fly to moon because they said they would build a rocket. The whole point is the specifics. How would they build a rocket? How would they raise taxes to meet their revenue targets?
It would have also been worth mentioning that the Congressional Budget Office projections for the Ryan plan imply that it would increase the cost of buying Medicare equivalent insurance policies by $30 trillion over the program’s 75-year planning period. This is approximately 6 times the size of the projected Social Security shortfall and comes to almost $100,000 in additional costs for every man, woman, and child in the country. This money would be a transfer from retirees to the insurance and health care industries under the Ryan plan.
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This is one of the things that readers of an article discussing the impact of the Fed’s quantitative easing policy might conclude. The article indicates that the second round of quantitative easing (QE2) has had little effect in boosting economic growth.
While this is likely true — it had a limited effect in keeping interest rates at already low levels — the policy of quantitative easing has had a substantial impact on the deficit. As a result of the fact that the Fed holds a large amount of assets, interest that otherwise would have been paid out to the general public is instead paid to the Fed. This money is then refunded to the Treasury.
Last year the Treasury refunded almost $80 billion to the Treasury, an amount that is approximately twice the size of the deficit reduction in the agreement reached earlier this month between President Obama and Congress on a continuing resolution. If the Fed were to continue to hold around $3 trillion in assets it would reduce the deficit by close to $1.5 trillion over the course of the next decade. (It can offset the inflationary impact of the increased reserves in the financial system by raising reserve requirements.) Given the obsession of the media with the budget deficit, it is remarkable that the NYT did not mention this implication of quantitative easing.
This article also wrongly referred to the downturn as a financial crisis. The main reason why the economy is suffering from high unemployment and weak growth is the collapse of the housing bubble. Large firms can now borrow money in financial markets at historically low real interest rates. Few small firms cite credit availability as a major problem in their business. It is difficult to see how the economy would be any different right now if the financial crisis had not occurred.
This is one of the things that readers of an article discussing the impact of the Fed’s quantitative easing policy might conclude. The article indicates that the second round of quantitative easing (QE2) has had little effect in boosting economic growth.
While this is likely true — it had a limited effect in keeping interest rates at already low levels — the policy of quantitative easing has had a substantial impact on the deficit. As a result of the fact that the Fed holds a large amount of assets, interest that otherwise would have been paid out to the general public is instead paid to the Fed. This money is then refunded to the Treasury.
Last year the Treasury refunded almost $80 billion to the Treasury, an amount that is approximately twice the size of the deficit reduction in the agreement reached earlier this month between President Obama and Congress on a continuing resolution. If the Fed were to continue to hold around $3 trillion in assets it would reduce the deficit by close to $1.5 trillion over the course of the next decade. (It can offset the inflationary impact of the increased reserves in the financial system by raising reserve requirements.) Given the obsession of the media with the budget deficit, it is remarkable that the NYT did not mention this implication of quantitative easing.
This article also wrongly referred to the downturn as a financial crisis. The main reason why the economy is suffering from high unemployment and weak growth is the collapse of the housing bubble. Large firms can now borrow money in financial markets at historically low real interest rates. Few small firms cite credit availability as a major problem in their business. It is difficult to see how the economy would be any different right now if the financial crisis had not occurred.
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Steven Pearlstein did his part for the Wall Street crusade to get people to surrender their Social Security and Medicare. He warned readers that if we don’t follow the Wall Street deficit reduction agenda, the dollar could enter a free fall. I would say that this is one of the silliest things the paper has ever published, but this is the Washington Post that we are talking about.
Anyhow, let’s put on our thinking caps and try to envision what Pearlstein’s scare story would look like. Currently, the euro is equal to around 1.45 dollars, there are approximately 6.5 yuan to a dollar and around 80 yen. Suppose we don’t follow the Wall Streeters’ wishes. Will the dollar fall to 3 to a euro, will it only be worth 3.5 yuan and 40 yen?
Does anyone think this story is plausible? We supposedly have been begging China to raise the value of its currency by 20 percent. Is China’s leadership suddenly going to sit back and let the yuan rise by 100 percent? What happens to China’s export market in this story? The same is the case for our other trading partners. Europe will lose its export market in the U.S. and suddenly U.S. made goods would be hyper-competitive in Europe’s domestic market. Japan, Canada and everyone else would face the same situation.
These countries will not allow their economies to be destroyed by the loss of the U.S. export market and a surge of imports from the United States. They will undoubtedly take steps to stop and reverse any free fall of the dollar, if we did begin to see one.
In other words Pearlstein and the others are peddling total nonsense when they try to push this scare story. The bottom line is that they want to cut benefits to the middle class. They don’t have a good story to sell a policy that will be harmful to large segments of the population, especially when the Peter Petersons of the world are making out like bandits. So they make stuff up.
As every economist knows the story of our deficit in the short-term is the downturn created by the collapse of the housing bubble. The deficit is propping up the economy following the loss of $1.2 trillion in annual demand from private sector.
The deficit story in the long-term is health care. Our health care system is out of control. Fixing health care would end the deficit problem, but this would reduce the income of the insurance industry, the pharmaceutical industry and other powerful interest groups. So, the Washington Post would rather just see people go with out health care. Hey, someone’s got to pay.
Steven Pearlstein did his part for the Wall Street crusade to get people to surrender their Social Security and Medicare. He warned readers that if we don’t follow the Wall Street deficit reduction agenda, the dollar could enter a free fall. I would say that this is one of the silliest things the paper has ever published, but this is the Washington Post that we are talking about.
Anyhow, let’s put on our thinking caps and try to envision what Pearlstein’s scare story would look like. Currently, the euro is equal to around 1.45 dollars, there are approximately 6.5 yuan to a dollar and around 80 yen. Suppose we don’t follow the Wall Streeters’ wishes. Will the dollar fall to 3 to a euro, will it only be worth 3.5 yuan and 40 yen?
Does anyone think this story is plausible? We supposedly have been begging China to raise the value of its currency by 20 percent. Is China’s leadership suddenly going to sit back and let the yuan rise by 100 percent? What happens to China’s export market in this story? The same is the case for our other trading partners. Europe will lose its export market in the U.S. and suddenly U.S. made goods would be hyper-competitive in Europe’s domestic market. Japan, Canada and everyone else would face the same situation.
These countries will not allow their economies to be destroyed by the loss of the U.S. export market and a surge of imports from the United States. They will undoubtedly take steps to stop and reverse any free fall of the dollar, if we did begin to see one.
In other words Pearlstein and the others are peddling total nonsense when they try to push this scare story. The bottom line is that they want to cut benefits to the middle class. They don’t have a good story to sell a policy that will be harmful to large segments of the population, especially when the Peter Petersons of the world are making out like bandits. So they make stuff up.
As every economist knows the story of our deficit in the short-term is the downturn created by the collapse of the housing bubble. The deficit is propping up the economy following the loss of $1.2 trillion in annual demand from private sector.
The deficit story in the long-term is health care. Our health care system is out of control. Fixing health care would end the deficit problem, but this would reduce the income of the insurance industry, the pharmaceutical industry and other powerful interest groups. So, the Washington Post would rather just see people go with out health care. Hey, someone’s got to pay.
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That is the implication of an NYT article on the decline in the number of physicians in independent family practices. The article argues that long hours and uncertain pay make it unattractive for physicians in the United States. This may be true given the extent to which the doctors’ lobbies have been able to limit the number of people licensed to practice medicine in the United States. However, there is a huge supply of people in the developing world who would be willing and able to train to U.S. standards and work under the conditions described in the article. If the Obama administration and Congress were not so completely dominated by protectionists, they would be working to eliminate the barriers that are making it more expensive for people in the United States to get health care.
That is the implication of an NYT article on the decline in the number of physicians in independent family practices. The article argues that long hours and uncertain pay make it unattractive for physicians in the United States. This may be true given the extent to which the doctors’ lobbies have been able to limit the number of people licensed to practice medicine in the United States. However, there is a huge supply of people in the developing world who would be willing and able to train to U.S. standards and work under the conditions described in the article. If the Obama administration and Congress were not so completely dominated by protectionists, they would be working to eliminate the barriers that are making it more expensive for people in the United States to get health care.
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Readers of the front page Washington Post article headlined, “the dollar, no longer almighty,” no doubt walked away very confused. The article never distinguishes between the government deficit/debt and the trade deficit/foreign debt.
The dollar will likely fall because of the ongoing trade deficit. This is the adjustment mechanism for a trade deficit in the system of floating exchange rates like the one we have in the United States. This has no direct relationship to the budget deficit. If the United States were running its current deficit of around $600 billion a year (@ 4 percent of GDP), it would be expected that the dollar would fall regardless of whether or not the country is running a budget deficit.
The decline in the dollar will benefit workers who are subjected to international competition, most importantly manufacturing workers. The decline in the dollar will reduce U.S. imports by making them more expensive and increase exports by making them cheaper to foreigners. This will increase the demand for manufacturing workers, driving up their wages.
By contrast, workers who are largely protected by regulations against foreign competition, like doctors, lawyers, and other highly educated professionals, will likely lose when the dollar falls. They will have to pay more for manufactured goods and will probably not be able to raise their fees proportionately.
It would have also been useful to remind readers of the basic accounting identity that net foreign borrowing is equal to net national investment. An identity is something that is true by definition — there is no possible way around it.
This identity means that if the United States has a large trade deficit, as it does now, then it must have either a large budget deficit or very low private savings, or some combination. (In principle, investment can rise, but as practical matter it is very hard to make non-residential investment rise by much as a share of GDP. Residential investment did rise substantially during the housing bubble, but it would be difficult to view this experience as health.)
This identity means that anyone who wants the budget deficit to fall without wanting the dollar to fall, want to see very low private sector savings. This would be a very perverse goal, although many policymakers seem to advocate this position without realizing it.
Readers of the front page Washington Post article headlined, “the dollar, no longer almighty,” no doubt walked away very confused. The article never distinguishes between the government deficit/debt and the trade deficit/foreign debt.
The dollar will likely fall because of the ongoing trade deficit. This is the adjustment mechanism for a trade deficit in the system of floating exchange rates like the one we have in the United States. This has no direct relationship to the budget deficit. If the United States were running its current deficit of around $600 billion a year (@ 4 percent of GDP), it would be expected that the dollar would fall regardless of whether or not the country is running a budget deficit.
The decline in the dollar will benefit workers who are subjected to international competition, most importantly manufacturing workers. The decline in the dollar will reduce U.S. imports by making them more expensive and increase exports by making them cheaper to foreigners. This will increase the demand for manufacturing workers, driving up their wages.
By contrast, workers who are largely protected by regulations against foreign competition, like doctors, lawyers, and other highly educated professionals, will likely lose when the dollar falls. They will have to pay more for manufactured goods and will probably not be able to raise their fees proportionately.
It would have also been useful to remind readers of the basic accounting identity that net foreign borrowing is equal to net national investment. An identity is something that is true by definition — there is no possible way around it.
This identity means that if the United States has a large trade deficit, as it does now, then it must have either a large budget deficit or very low private savings, or some combination. (In principle, investment can rise, but as practical matter it is very hard to make non-residential investment rise by much as a share of GDP. Residential investment did rise substantially during the housing bubble, but it would be difficult to view this experience as health.)
This identity means that anyone who wants the budget deficit to fall without wanting the dollar to fall, want to see very low private sector savings. This would be a very perverse goal, although many policymakers seem to advocate this position without realizing it.
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The NYT wrongly told readers that a bill approved by the New Hampshire legislature would, “disallow collective bargaining agreements that require employees to join a labor union.” It is already the case that collective bargaining agreements cannot require employees to join a labor union.
Under current New Hampshire law, collective bargaining agreements can require workers to pay representation fees to a union. National labor law requires that a union represent all workers who are in a bargaining unit regardless of whether or not they opt to join the union.
This means that non-members not only get the same wages and benefits as union members, but the union is also required to represent non-members in any conflict with the employer covered by the contract. For example, if a non-member is faced with an improper dismissal the union is obligated to provide them with the same representation as a union member.
The new bill passed by the New Hampshire legislature effectively guarantees non-union members the right to get union representation without paying for it (representation without taxation). It denies workers the freedom of contract that they currently enjoy, which would allow them to require that everyone who benefits from union representation has to share in the cost of union representation.
The NYT wrongly told readers that a bill approved by the New Hampshire legislature would, “disallow collective bargaining agreements that require employees to join a labor union.” It is already the case that collective bargaining agreements cannot require employees to join a labor union.
Under current New Hampshire law, collective bargaining agreements can require workers to pay representation fees to a union. National labor law requires that a union represent all workers who are in a bargaining unit regardless of whether or not they opt to join the union.
This means that non-members not only get the same wages and benefits as union members, but the union is also required to represent non-members in any conflict with the employer covered by the contract. For example, if a non-member is faced with an improper dismissal the union is obligated to provide them with the same representation as a union member.
The new bill passed by the New Hampshire legislature effectively guarantees non-union members the right to get union representation without paying for it (representation without taxation). It denies workers the freedom of contract that they currently enjoy, which would allow them to require that everyone who benefits from union representation has to share in the cost of union representation.
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The Washington Post printed an oped column from Alaska Senator Lisa Murkowski arguing for increased domestic oil production. The column directly confuses short-term economic weakness with the impact of long-term oil prices.
It cites Harvard professor and former AIG director Martin Feldstein as supporting the claim that “that if prices remain high, economic growth will languish.” In fact, the quote from Feldstein explicitly refers to economic growth this year. There is nothing that the government can do that will in any significant way affect the amount of oil that the U.S. produces this year. Therefore, Feldstein’s statement is irrelevant to the issue at hand.
As far as the longer term question, higher oil prices would have a modest impact in slowing growth in most economic forecasting models. However even large increases in domestic production would have little impact on world oil prices (the relevant variable) and therefore have little effect on economic growth. A serious newspaper would not have allowed a columnist to make such misleading assertions.
The Washington Post printed an oped column from Alaska Senator Lisa Murkowski arguing for increased domestic oil production. The column directly confuses short-term economic weakness with the impact of long-term oil prices.
It cites Harvard professor and former AIG director Martin Feldstein as supporting the claim that “that if prices remain high, economic growth will languish.” In fact, the quote from Feldstein explicitly refers to economic growth this year. There is nothing that the government can do that will in any significant way affect the amount of oil that the U.S. produces this year. Therefore, Feldstein’s statement is irrelevant to the issue at hand.
As far as the longer term question, higher oil prices would have a modest impact in slowing growth in most economic forecasting models. However even large increases in domestic production would have little impact on world oil prices (the relevant variable) and therefore have little effect on economic growth. A serious newspaper would not have allowed a columnist to make such misleading assertions.
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