That is the only thing that readers of his column can conclude. Or, alternatively perhaps he missed the debate over health care reform during the last two years.
Brooks is very upset that President Obama is not doing more to deal with the growing national debt. If Brooks had access to budget documents he would know that the main reason for the large current budget deficits is the downturn caused by the collapse of the housing bubble.
If he is upset about these deficits he should be angry at the people who failed to warn of the dangers of the housing bubble. Certainly Mr. Brooks belongs on that list since he has a semi-weekly column that often deals with economic issues.
If Brooks had access to budget documents he would also know that the main driver of the deficit over the longer term is health care costs. If the United States paid the same amount per person for health care as any other wealthy country we would have huge budget surpluses, not budget deficits.
One of the goals of health care reform was to reduce the rate of growth of health care costs, which would also lower the deficit in the long-term. Brooks seems to be unaware of this aspect of the debate.
That is the only thing that readers of his column can conclude. Or, alternatively perhaps he missed the debate over health care reform during the last two years.
Brooks is very upset that President Obama is not doing more to deal with the growing national debt. If Brooks had access to budget documents he would know that the main reason for the large current budget deficits is the downturn caused by the collapse of the housing bubble.
If he is upset about these deficits he should be angry at the people who failed to warn of the dangers of the housing bubble. Certainly Mr. Brooks belongs on that list since he has a semi-weekly column that often deals with economic issues.
If Brooks had access to budget documents he would also know that the main driver of the deficit over the longer term is health care costs. If the United States paid the same amount per person for health care as any other wealthy country we would have huge budget surpluses, not budget deficits.
One of the goals of health care reform was to reduce the rate of growth of health care costs, which would also lower the deficit in the long-term. Brooks seems to be unaware of this aspect of the debate.
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The Washington Post had a front page article highlighted the rising interest payments made by the federal government as a result of its rising debt. It would have been useful to point out that the decision to pay interest to wealthy bondholders is a policy choice, not a fact of nature.
It is possible for the Federal Reserve Board to buy and hold government bonds. In this situation interest on the government debt is paid to the Fed, which then refunds the money to the Treasury, creating no net interest burden for the government. Last year, the Fed refunded nearly $80 billion to the Treasury based on the large amount of mortgage backed securities and Treasury bonds it now holds.
While the Congressional Budget Office projects that the Fed will sell off these assets over the next few years it could opt to buy and hold a large amount of debt (e.g. $3-4 trillion). To prevent inflation when the economy recovers it could raise reserve requirements, the same route that China’s central bank is now pursuing to head off inflation in China.
The decision to not have the Fed hold bonds is a policy decision. This policy choice should have been discussed in the article. Having the Fed buy and hold bonds would be one way to avoid imposing a large tax burden on the general public as a result of the countercyclical measures necessary to lift the economy out of this downturn. Readers should be informed about it.
This piece is really an editorial intended to scare readers into supporting harsh measures to reduce the deficit. It makes not effort to place the budget deficits in any sort of historical context and includes scary sounding assertions with no real meaning, such as:
“The borrowing the United States did over the past decade – to pay for the 2001 tax cut, the wars in Iraq and Afghanistan, and propping up the economy during the steep 2009 downturn – is coming due this decade.”
There is no way in which this statement makes any sense. Bonds are coming due every month of every year. There is nothing “coming due” this decade that does not come due every decade.
It also would be useful if the Post did not rely exclusively on economists who failed to see the $8 trillion housing bubble as its sources in its economic reporting.
Addendum: It is also worth noting that the ratio of interest payments to GDP is not projected to rise back to its early 90s level until well into the next decade. So the idea that we will be facing an unprecedented interest burden is not accurate. Thanks to Gary Burtless for reminding me of this point.
The Washington Post had a front page article highlighted the rising interest payments made by the federal government as a result of its rising debt. It would have been useful to point out that the decision to pay interest to wealthy bondholders is a policy choice, not a fact of nature.
It is possible for the Federal Reserve Board to buy and hold government bonds. In this situation interest on the government debt is paid to the Fed, which then refunds the money to the Treasury, creating no net interest burden for the government. Last year, the Fed refunded nearly $80 billion to the Treasury based on the large amount of mortgage backed securities and Treasury bonds it now holds.
While the Congressional Budget Office projects that the Fed will sell off these assets over the next few years it could opt to buy and hold a large amount of debt (e.g. $3-4 trillion). To prevent inflation when the economy recovers it could raise reserve requirements, the same route that China’s central bank is now pursuing to head off inflation in China.
The decision to not have the Fed hold bonds is a policy decision. This policy choice should have been discussed in the article. Having the Fed buy and hold bonds would be one way to avoid imposing a large tax burden on the general public as a result of the countercyclical measures necessary to lift the economy out of this downturn. Readers should be informed about it.
This piece is really an editorial intended to scare readers into supporting harsh measures to reduce the deficit. It makes not effort to place the budget deficits in any sort of historical context and includes scary sounding assertions with no real meaning, such as:
“The borrowing the United States did over the past decade – to pay for the 2001 tax cut, the wars in Iraq and Afghanistan, and propping up the economy during the steep 2009 downturn – is coming due this decade.”
There is no way in which this statement makes any sense. Bonds are coming due every month of every year. There is nothing “coming due” this decade that does not come due every decade.
It also would be useful if the Post did not rely exclusively on economists who failed to see the $8 trillion housing bubble as its sources in its economic reporting.
Addendum: It is also worth noting that the ratio of interest payments to GDP is not projected to rise back to its early 90s level until well into the next decade. So the idea that we will be facing an unprecedented interest burden is not accurate. Thanks to Gary Burtless for reminding me of this point.
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The introduction to Morning Edition promised us a discussion with a Republican who is open to tax increases and a Democrat who is open spending cuts. The top of the hour news segment then included a sound bite from a Republican member of Congress who said that she didn’t see why the American people should be financing news that is biased.
Although this member was complaining that the news was biased from the left, she has a very good point. After all, this segment was outrageously biased since it implied that there was no question that there was a serious budget problem.
All budget experts know that the current deficits are overwhelmingly attributable to the economic downturn caused by the collapse of the housing bubble. The longer term shortfall is entirely attributable to the broken health care system. If the United States paid the same amount per person for its health care as any other wealthy country we would be looking at large budget surpluses, not deficits.
These basic facts were never mentioned in the discussion with the two senators. It was an entirely one-sided push for deficit reduction without any discussion of the real issues at stake. It is hard not to agree with the Republican member of Congress. Why should taxpayers be paying for such biased reporting, isn’t this what Peter Peterson is paying for with his foundation?
The introduction to Morning Edition promised us a discussion with a Republican who is open to tax increases and a Democrat who is open spending cuts. The top of the hour news segment then included a sound bite from a Republican member of Congress who said that she didn’t see why the American people should be financing news that is biased.
Although this member was complaining that the news was biased from the left, she has a very good point. After all, this segment was outrageously biased since it implied that there was no question that there was a serious budget problem.
All budget experts know that the current deficits are overwhelmingly attributable to the economic downturn caused by the collapse of the housing bubble. The longer term shortfall is entirely attributable to the broken health care system. If the United States paid the same amount per person for its health care as any other wealthy country we would be looking at large budget surpluses, not deficits.
These basic facts were never mentioned in the discussion with the two senators. It was an entirely one-sided push for deficit reduction without any discussion of the real issues at stake. It is hard not to agree with the Republican member of Congress. Why should taxpayers be paying for such biased reporting, isn’t this what Peter Peterson is paying for with his foundation?
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Either Senator Warner doesn’t know one of the most basic facts about Social Security or he is deliberately saying things that are not true to advance his agenda of cutting Social Security. In an interview on Morning Edition he commented that Franklin Roosevelt set the retirement age at 65 when the program was initially established and that we have still not raised it, even though we have had substantial increases in life expectancy.
In fact, the age for receiving full benefits has already been raised to 66 and will rise further to age 67 for people born after 1962. It would be incredible if Senator Warner was unaware of this fact. It is also remarkable that the moderator did not correct Mr. Warner’s misstatement and inform listeners that the normal retirement age has in fact been raised. This is not the first time that Morning Edition has been used to pass along a false information to disparage Social Security.
Either Senator Warner doesn’t know one of the most basic facts about Social Security or he is deliberately saying things that are not true to advance his agenda of cutting Social Security. In an interview on Morning Edition he commented that Franklin Roosevelt set the retirement age at 65 when the program was initially established and that we have still not raised it, even though we have had substantial increases in life expectancy.
In fact, the age for receiving full benefits has already been raised to 66 and will rise further to age 67 for people born after 1962. It would be incredible if Senator Warner was unaware of this fact. It is also remarkable that the moderator did not correct Mr. Warner’s misstatement and inform listeners that the normal retirement age has in fact been raised. This is not the first time that Morning Edition has been used to pass along a false information to disparage Social Security.
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It’s called the “interest rate.” The NYT should have made a reference to interest rates in an article that reported House Speaker John Boehner’s claim that government borrowing is pulling away money from the private sector, thereby curtailing investment.
The data do not support Mr. Boehner’s claim. Interest rates are at historically low levels. For example, the interest rate on Baa bonds, which would be paid by large reasonably creditworthy companies, is lower in both nominal and real terms than it was in the late 90s when the government was running a budget surplus.
If the article had discussed the interest rate, readers would have the ability to assess whether Mr. Boehner’s claim is accurate. Instead, the article is essentially just a he said/she said piece.
It’s called the “interest rate.” The NYT should have made a reference to interest rates in an article that reported House Speaker John Boehner’s claim that government borrowing is pulling away money from the private sector, thereby curtailing investment.
The data do not support Mr. Boehner’s claim. Interest rates are at historically low levels. For example, the interest rate on Baa bonds, which would be paid by large reasonably creditworthy companies, is lower in both nominal and real terms than it was in the late 90s when the government was running a budget surplus.
If the article had discussed the interest rate, readers would have the ability to assess whether Mr. Boehner’s claim is accurate. Instead, the article is essentially just a he said/she said piece.
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The NYT ran an article discussing disagreements between Republicans and Democrats over the merits of the Financial Crisis Inquiry Commission’s report. At one point it quoted Bill Thomas, the Republican vice-chair of the commission, citing Warren Buffet as saying that no one saw the housing bubble.
Mr. Buffet was clearly wrong in this assertion. Some economists very clearly saw the housing bubble. Given the extraordinary departure of house prices from their long-term trend, with no basis in the fundamentals of the market, it is amazing that all economists did not see the bubble. It is even more amazing that no economists seem to have suffered any consequences to their careers from the incredible failure.
The article should have pointed out that Mr. Buffet was wrong and therefore Thomas should not have relied on his statement in making his assessment of the report.
The NYT ran an article discussing disagreements between Republicans and Democrats over the merits of the Financial Crisis Inquiry Commission’s report. At one point it quoted Bill Thomas, the Republican vice-chair of the commission, citing Warren Buffet as saying that no one saw the housing bubble.
Mr. Buffet was clearly wrong in this assertion. Some economists very clearly saw the housing bubble. Given the extraordinary departure of house prices from their long-term trend, with no basis in the fundamentals of the market, it is amazing that all economists did not see the bubble. It is even more amazing that no economists seem to have suffered any consequences to their careers from the incredible failure.
The article should have pointed out that Mr. Buffet was wrong and therefore Thomas should not have relied on his statement in making his assessment of the report.
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Before the Pennsylvania primary in the 2008 presidential election, then Senator Barack Obama made a speech at a fundraiser in which he referred to working class whites as being “bitter.” This was referred to as a “gaffe” and became a central theme in news reporting over the next two weeks.
On Morning Edition, NPR included comments from the Republican congressional leadership that the United States is “broke” and therefore has no choice but to make very large cuts in the budget. Of course this is not true. Investors are willing to lend the United States trillions of dollars at historically low interest rates. This means that the government is not broke. There is no evidence that it is coming up against any serious spending or borrowing limitation.
This inaccurate representation of a basic issue about the financial health of the U.S. government would have been worth pointing out to listeners. It almost certainly matters more to most of the public than President Obama’s comment about working class whites being bitter.
Before the Pennsylvania primary in the 2008 presidential election, then Senator Barack Obama made a speech at a fundraiser in which he referred to working class whites as being “bitter.” This was referred to as a “gaffe” and became a central theme in news reporting over the next two weeks.
On Morning Edition, NPR included comments from the Republican congressional leadership that the United States is “broke” and therefore has no choice but to make very large cuts in the budget. Of course this is not true. Investors are willing to lend the United States trillions of dollars at historically low interest rates. This means that the government is not broke. There is no evidence that it is coming up against any serious spending or borrowing limitation.
This inaccurate representation of a basic issue about the financial health of the U.S. government would have been worth pointing out to listeners. It almost certainly matters more to most of the public than President Obama’s comment about working class whites being bitter.
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The Post probably did not realize that this is what it was telling readers, otherwise it should have been the headline of the article, but this is the logical implication of the assertion in the middle of the article that:
“analysts who study personal finances say that savings rates and debt ratios are not going to return to their 1980s levels.”
This statement means that the savings rate will remain near 5 percent instead of rising back to its historic rate from the 80s and prior decades, which was over 8.0 percent.
If these analysts are right, this means that workers will accumulate less money for their retirement, relative to their income in their working years, than their parents and grandparents. With Social Security providing a lower replacement rate and Medicare premiums and other health care costs rising relative to income, this means that retirees will be relatively poorer in the future than at present. This will be even more true if Social Security benefits are reduced further.
It is also worth noting that a lower private sector saving rate has the same impact on the economy as a higher government budget deficit. Given that the Washington Post has been virtually obsessed with the budget deficit on both its news and editorial pages, it is striking that it appears so little concerned about the prospect of lower private sector savings.
Remarkably this article also never mentions the housing bubble. The run-up in house prices was the cause of heavy consumer borrowing in the years prior to the downturn. Conventional estimates put the housing wealth effect at 5-7 percent, meaning that consumers will increase annual spending by between 5-7 cents for each additional dollar of housing wealth. When the bubble burst, destroying $6 trillion in housing equity, it was entirely predictable that consumption would plummet.
The Post probably did not realize that this is what it was telling readers, otherwise it should have been the headline of the article, but this is the logical implication of the assertion in the middle of the article that:
“analysts who study personal finances say that savings rates and debt ratios are not going to return to their 1980s levels.”
This statement means that the savings rate will remain near 5 percent instead of rising back to its historic rate from the 80s and prior decades, which was over 8.0 percent.
If these analysts are right, this means that workers will accumulate less money for their retirement, relative to their income in their working years, than their parents and grandparents. With Social Security providing a lower replacement rate and Medicare premiums and other health care costs rising relative to income, this means that retirees will be relatively poorer in the future than at present. This will be even more true if Social Security benefits are reduced further.
It is also worth noting that a lower private sector saving rate has the same impact on the economy as a higher government budget deficit. Given that the Washington Post has been virtually obsessed with the budget deficit on both its news and editorial pages, it is striking that it appears so little concerned about the prospect of lower private sector savings.
Remarkably this article also never mentions the housing bubble. The run-up in house prices was the cause of heavy consumer borrowing in the years prior to the downturn. Conventional estimates put the housing wealth effect at 5-7 percent, meaning that consumers will increase annual spending by between 5-7 cents for each additional dollar of housing wealth. When the bubble burst, destroying $6 trillion in housing equity, it was entirely predictable that consumption would plummet.
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The NYT apparently really wants Congress to cut Social Security. How else can someone explain the absurd comment that:
“Some administration advisers wanted him [Obama] to propose specific changes to fix Social Security, which has accumulated surpluses to date but before long will begin paying out more than it takes in from payroll taxes.”
Of course the reason that Social Security accumulated surpluses was to cover the period after the baby boom is mostly retired when it is projected to pay benefits that exceed annual revenue. This is not a problem, it is part of the design of the program. If President Obama has any officials who do not understand this basic fact, then they are obviously way over their head.
The NYT apparently really wants Congress to cut Social Security. How else can someone explain the absurd comment that:
“Some administration advisers wanted him [Obama] to propose specific changes to fix Social Security, which has accumulated surpluses to date but before long will begin paying out more than it takes in from payroll taxes.”
Of course the reason that Social Security accumulated surpluses was to cover the period after the baby boom is mostly retired when it is projected to pay benefits that exceed annual revenue. This is not a problem, it is part of the design of the program. If President Obama has any officials who do not understand this basic fact, then they are obviously way over their head.
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After rising rapidly in the 30 years following World War II, living standards for most people in the United States stagnated. The typical family has seen very modest gains in income since 1980. The data show that part of this slowdown stems from a slower rate of productivity growth and part of it stems from an upward redistribution of income.
The upward redistribution of income can be directly traced to a number of policies that were designed to have this effect. For example, we have a trade policy that subjects U.S. manufacturing workers to competition with low-paid workers in the developing world, while largely protecting doctors and lawyers and other highly paid professions.
We have had a Federal Reserve Board policy that explicitly puts downward pressure on the wages of these same workers in order to ensure that inflation stays low. The government has also repeatedly propped up the financial industry, allowing the top executives at major banks to earn vast fortunes. And, it has directed vast amounts of income to drug companies and the entertainment industry through patent and copyright monopolies.
All of these facts are evident to anyone who cares to look. But David Brooks tells us that the reason that we have seen fewer gains in living standards for the bulk of the population is that the rich want to work less than they used to. There is not one iota of data given to support this position, which seems to fly in the face of the evidence that average hours worked for most of the workforce fell rapidly in the first half of the 20th century. It largely stagnated for full-time male workers in the last three decades. (It rose for women.)
In other words, Brooks has absolutely zero evidence for this little story of the stagnation of living standards. But, hey why would anyone expect an evidenced-based column in the New York Times?
Btw, I forgot to beat up on Brooks for another major mistake in his article. He makes a point of telling us that:
“Facebook employs about 2,000, Twitter 300 and eBay about 17,000. It takes only 14,000 employees to make and sell iPods, but that device also eliminates jobs for those people who make and distribute CDs, potentially leading to net job losses.
In other words, as Cowen makes clear, many of this era’s technological breakthroughs produce enormous happiness gains, but surprisingly little additional economic activity.”
No, this is 180 degrees wrong. In fact, if new devices, software, or ways of doing business are creating great gains in living standards, as Brooks claims, but require very few workers, then this suggests that they are leading to an enormous amount of economic activity. It is possible that our measures of GDP are not picking up these gains, but if these new innovations are really as important to people as Brooks’ seems to believe then the issue is simply one of measurement, not a lack of economic activity.
As a practical matter, economists always know how to create jobs — we can just have workers put in fewer hours, as one obvious route — it is only incompetent and/or corrupt politicians who stand in the way of a full employment economy.
After rising rapidly in the 30 years following World War II, living standards for most people in the United States stagnated. The typical family has seen very modest gains in income since 1980. The data show that part of this slowdown stems from a slower rate of productivity growth and part of it stems from an upward redistribution of income.
The upward redistribution of income can be directly traced to a number of policies that were designed to have this effect. For example, we have a trade policy that subjects U.S. manufacturing workers to competition with low-paid workers in the developing world, while largely protecting doctors and lawyers and other highly paid professions.
We have had a Federal Reserve Board policy that explicitly puts downward pressure on the wages of these same workers in order to ensure that inflation stays low. The government has also repeatedly propped up the financial industry, allowing the top executives at major banks to earn vast fortunes. And, it has directed vast amounts of income to drug companies and the entertainment industry through patent and copyright monopolies.
All of these facts are evident to anyone who cares to look. But David Brooks tells us that the reason that we have seen fewer gains in living standards for the bulk of the population is that the rich want to work less than they used to. There is not one iota of data given to support this position, which seems to fly in the face of the evidence that average hours worked for most of the workforce fell rapidly in the first half of the 20th century. It largely stagnated for full-time male workers in the last three decades. (It rose for women.)
In other words, Brooks has absolutely zero evidence for this little story of the stagnation of living standards. But, hey why would anyone expect an evidenced-based column in the New York Times?
Btw, I forgot to beat up on Brooks for another major mistake in his article. He makes a point of telling us that:
“Facebook employs about 2,000, Twitter 300 and eBay about 17,000. It takes only 14,000 employees to make and sell iPods, but that device also eliminates jobs for those people who make and distribute CDs, potentially leading to net job losses.
In other words, as Cowen makes clear, many of this era’s technological breakthroughs produce enormous happiness gains, but surprisingly little additional economic activity.”
No, this is 180 degrees wrong. In fact, if new devices, software, or ways of doing business are creating great gains in living standards, as Brooks claims, but require very few workers, then this suggests that they are leading to an enormous amount of economic activity. It is possible that our measures of GDP are not picking up these gains, but if these new innovations are really as important to people as Brooks’ seems to believe then the issue is simply one of measurement, not a lack of economic activity.
As a practical matter, economists always know how to create jobs — we can just have workers put in fewer hours, as one obvious route — it is only incompetent and/or corrupt politicians who stand in the way of a full employment economy.
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