David Brooks concluded a piece, “The Freedom Alliance,” calling for a mass movement to cut Social Security and Medicare:
“It’s not only about debt; it’s about freedom. It’s about whether we get to make budget choices or whether we have our lives dictated by the inexorable growth of programs beyond our control.”
Wow, I’ve got “God Bless America” going on the stereo and I’m getting out my marching clothes!
Brooks better hope that the masses march before they think, because if the sequence goes in the other direction, the march will never happen. As everyone knows, there is no story of programs with out of control costs.
The whole story is of out of control health care costs. This is a problem of a broken private sector health care system. This becomes a budget problem because we pay for more than half of our health care through public sector programs like Medicare and Medicaid. If per person health care costs in the United States were the same as in any of the countries with longer life expectancies, we would be looking at huge budget surpluses, not deficits.
The evidence would suggest that Brooks’ mass movement should be directed at reforming our health care cesspool. We pay 10 times what we should for prescription drugs because of our absurd method of financing research through government granted patent monopolies. This government intervention gives an enormous incentive for drug companies to lie about the effectiveness and safety of their drugs, something which they do with considerable frequency. There is a similar story with medical devices.
Our doctors also get paid far more than doctors in other wealthy countries. This is not true for our retail clerks and our steelworkers. The reason is that our doctors enjoy much greater protection from international competition than less politically powerful workers. If Brooks, who fashions himself as a free trader, really wanted to get our deficit under control, he would be revving people up to reduce the barriers that sustain the high salaries for doctors in the United States.
Brooks could also be trying to motivate people to support a Medicare buy-in that could save hundreds of billions in administrative costs over the next decade. Or, in keeping with his “freedom” theme, how about just giving Medicare beneficiaries the option to buy into other countries’ health care systems with the beneficiary and the government splitting the savings? This one is all about freedom — let our beneficiaries go!
So, the basic question is whether we confront the powerful interest groups who profit from our broken and corrupt health care system or whether we beat up the retired and disabled workers who depend on Social Security and Medicare. David Brooks told us where he stands.
David Brooks concluded a piece, “The Freedom Alliance,” calling for a mass movement to cut Social Security and Medicare:
“It’s not only about debt; it’s about freedom. It’s about whether we get to make budget choices or whether we have our lives dictated by the inexorable growth of programs beyond our control.”
Wow, I’ve got “God Bless America” going on the stereo and I’m getting out my marching clothes!
Brooks better hope that the masses march before they think, because if the sequence goes in the other direction, the march will never happen. As everyone knows, there is no story of programs with out of control costs.
The whole story is of out of control health care costs. This is a problem of a broken private sector health care system. This becomes a budget problem because we pay for more than half of our health care through public sector programs like Medicare and Medicaid. If per person health care costs in the United States were the same as in any of the countries with longer life expectancies, we would be looking at huge budget surpluses, not deficits.
The evidence would suggest that Brooks’ mass movement should be directed at reforming our health care cesspool. We pay 10 times what we should for prescription drugs because of our absurd method of financing research through government granted patent monopolies. This government intervention gives an enormous incentive for drug companies to lie about the effectiveness and safety of their drugs, something which they do with considerable frequency. There is a similar story with medical devices.
Our doctors also get paid far more than doctors in other wealthy countries. This is not true for our retail clerks and our steelworkers. The reason is that our doctors enjoy much greater protection from international competition than less politically powerful workers. If Brooks, who fashions himself as a free trader, really wanted to get our deficit under control, he would be revving people up to reduce the barriers that sustain the high salaries for doctors in the United States.
Brooks could also be trying to motivate people to support a Medicare buy-in that could save hundreds of billions in administrative costs over the next decade. Or, in keeping with his “freedom” theme, how about just giving Medicare beneficiaries the option to buy into other countries’ health care systems with the beneficiary and the government splitting the savings? This one is all about freedom — let our beneficiaries go!
So, the basic question is whether we confront the powerful interest groups who profit from our broken and corrupt health care system or whether we beat up the retired and disabled workers who depend on Social Security and Medicare. David Brooks told us where he stands.
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The NYT discussed the prospect of the Chinese yuan becoming an international currency. At several points the article implied that this would mean displacing the dollar. This is not true.
There are several international currencies, the euro, the British pound, the Japanese yuan, and even the Swiss franc, in the sense that they are held as reserves and sometimes used as the means of exchange in trade. The dollar is by far the dominant currency, but it is certainly not the only one.
While the yuan may at some point displace the dollar as the leading international currency, if it becomes an international currency, it will initially join this longer list of currencies. Assuming China’s economy continues to outpace the growth of the U.S. economy, its currency will eventually displace the dollar as the leading international currency.
The NYT discussed the prospect of the Chinese yuan becoming an international currency. At several points the article implied that this would mean displacing the dollar. This is not true.
There are several international currencies, the euro, the British pound, the Japanese yuan, and even the Swiss franc, in the sense that they are held as reserves and sometimes used as the means of exchange in trade. The dollar is by far the dominant currency, but it is certainly not the only one.
While the yuan may at some point displace the dollar as the leading international currency, if it becomes an international currency, it will initially join this longer list of currencies. Assuming China’s economy continues to outpace the growth of the U.S. economy, its currency will eventually displace the dollar as the leading international currency.
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President Obama pledged to double exports in five years. This one should have lead to raucous laughter across the country, because it is just silly policy. As every economist knows, exports do not create jobs, net exports (the difference between exports and imports) creates jobs. If exports by themselves created jobs, then we could create millions of jobs by importing trillions of dollars of goods from Mexico, Canada and elsewhere and then exporting them back over the border again.
Unfortunately, NPR chose not to make this point in discussing President Obama’s trade target on Morning Edition. Instead, it treated the doubling of exports as a serious and important economic goal. It also repeatedly referred to “free trade” and “free trade agreements.”
The Obama administration is not promoting free trade or free trade agreements. Its trade agenda does little or nothing to remove the barriers to trade in highly paid professional services, like physicians’ services or legal services. It also increases protectionist barriers for copyrights and patents.
Promoters of these pacts like to call them “free-trade” agreements because it sounds better than selective protectionism, just as President Reagan dubbed the MX missile the “Peacekeeper.” However, it would have been inappropriate for the media to call the MX missile the “Peacekeeper” (it didn’t), and it is inappropriate to refer to these trade deals as “free-trade” agreements.
President Obama pledged to double exports in five years. This one should have lead to raucous laughter across the country, because it is just silly policy. As every economist knows, exports do not create jobs, net exports (the difference between exports and imports) creates jobs. If exports by themselves created jobs, then we could create millions of jobs by importing trillions of dollars of goods from Mexico, Canada and elsewhere and then exporting them back over the border again.
Unfortunately, NPR chose not to make this point in discussing President Obama’s trade target on Morning Edition. Instead, it treated the doubling of exports as a serious and important economic goal. It also repeatedly referred to “free trade” and “free trade agreements.”
The Obama administration is not promoting free trade or free trade agreements. Its trade agenda does little or nothing to remove the barriers to trade in highly paid professional services, like physicians’ services or legal services. It also increases protectionist barriers for copyrights and patents.
Promoters of these pacts like to call them “free-trade” agreements because it sounds better than selective protectionism, just as President Reagan dubbed the MX missile the “Peacekeeper.” However, it would have been inappropriate for the media to call the MX missile the “Peacekeeper” (it didn’t), and it is inappropriate to refer to these trade deals as “free-trade” agreements.
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Reuters highlighted the drop in new jobless claims reported for last week to 383,000, which it pointed out was a 2 1/2 year low. It would have been worth mentioning that weather may have been a factor limiting claims last week. A severe snowstorm hit much of the Midwest and Northeast, likely making it difficult for people to file claims.
A large jump in claims in the second week of January to 447,000, was explained at the time by the fact that weather had prevented laid off workers from filing claims in the prior weeks. If that explanation was true, then it is likely that weather also prevented people from filing claims last week, which means that we should expect a jump in claims next week.
It is good that this report appears to be receiving some attention. The last few reports, which showed higher than expected claims, had been given very little coverage.
Reuters highlighted the drop in new jobless claims reported for last week to 383,000, which it pointed out was a 2 1/2 year low. It would have been worth mentioning that weather may have been a factor limiting claims last week. A severe snowstorm hit much of the Midwest and Northeast, likely making it difficult for people to file claims.
A large jump in claims in the second week of January to 447,000, was explained at the time by the fact that weather had prevented laid off workers from filing claims in the prior weeks. If that explanation was true, then it is likely that weather also prevented people from filing claims last week, which means that we should expect a jump in claims next week.
It is good that this report appears to be receiving some attention. The last few reports, which showed higher than expected claims, had been given very little coverage.
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NPR told listeners that: “the federal budget boosted spending during the recession, and now it’s widely acknowledged that spending has to come down. The questions are how soon and by how much (emphasis added).”
The term “acknowledged” implies that it is a fact that spending must come down and that people in policy debates are just now recognizing what it is known to be true. Of course it is not a fact. While federal spending did rise in the downturn, primarily to offset budget shortfalls at the state level and to pay for counter cyclical programs like unemployment insurance and food stamps, there is no reason in principle why federal spending could not remain permanently at its current level. Even at 24 percent of GDP, the share of government spending in the economy in the United States would still be near the bottom among wealthy countries.
The producers at NPR may want government spending to come down, but this is just their opinion of the direction that the country should be taking. There is no need to cut government spending that exists for anyone to acknowledge.
Thanks to Michele Mattingly for calling this to my attention.
NPR told listeners that: “the federal budget boosted spending during the recession, and now it’s widely acknowledged that spending has to come down. The questions are how soon and by how much (emphasis added).”
The term “acknowledged” implies that it is a fact that spending must come down and that people in policy debates are just now recognizing what it is known to be true. Of course it is not a fact. While federal spending did rise in the downturn, primarily to offset budget shortfalls at the state level and to pay for counter cyclical programs like unemployment insurance and food stamps, there is no reason in principle why federal spending could not remain permanently at its current level. Even at 24 percent of GDP, the share of government spending in the economy in the United States would still be near the bottom among wealthy countries.
The producers at NPR may want government spending to come down, but this is just their opinion of the direction that the country should be taking. There is no need to cut government spending that exists for anyone to acknowledge.
Thanks to Michele Mattingly for calling this to my attention.
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Most news outlets have given considerable space in recent weeks to the argument that the U.S. economy suffers from structural unemployment. This means that the reason that people are unemployed is that they lack the skills necessary for the available jobs. This contrasts with the idea that the unemployment is primarily cyclical, which means that it is the result of a lack of demand in the economy. This issue is central to our understanding of the economy since it effectively raises the question of whether we blame unemployed workers for lacking the skills needed to get a job or we blame policymakers for lacking the skills needed to run the economy.
The evidence for the structural unemployment argument has mostly been anecdotal — interviews with managers who complained that they could not hire people at the wage they wanted to pay. The news reports on structural unemployment have not sought to look for the sort of data that would support this view of the economy, such as evidence of rapidly rising real wages for some occupations or a large increase in job openings.
One item that had been cited as supporting the structural unemployment view was the modest increase in the number of job openings from the trough of the downturn in the summer of 2009. Job openings had risen by close to a third from their low, although they were still down by more than 25 percent from their pre-recession level. Openings also never rose above 25 percent of the number of unemployed.
In any case, given the importance of the job openings number for those making the structural unemployment argument, it might have been expected that the release of data from the Labor Department showing that the number of openings had fallen for the second consecutive month would have gotten considerable attention. Instead, it merited just a few small pieces or blognotes.
Most news outlets have given considerable space in recent weeks to the argument that the U.S. economy suffers from structural unemployment. This means that the reason that people are unemployed is that they lack the skills necessary for the available jobs. This contrasts with the idea that the unemployment is primarily cyclical, which means that it is the result of a lack of demand in the economy. This issue is central to our understanding of the economy since it effectively raises the question of whether we blame unemployed workers for lacking the skills needed to get a job or we blame policymakers for lacking the skills needed to run the economy.
The evidence for the structural unemployment argument has mostly been anecdotal — interviews with managers who complained that they could not hire people at the wage they wanted to pay. The news reports on structural unemployment have not sought to look for the sort of data that would support this view of the economy, such as evidence of rapidly rising real wages for some occupations or a large increase in job openings.
One item that had been cited as supporting the structural unemployment view was the modest increase in the number of job openings from the trough of the downturn in the summer of 2009. Job openings had risen by close to a third from their low, although they were still down by more than 25 percent from their pre-recession level. Openings also never rose above 25 percent of the number of unemployed.
In any case, given the importance of the job openings number for those making the structural unemployment argument, it might have been expected that the release of data from the Labor Department showing that the number of openings had fallen for the second consecutive month would have gotten considerable attention. Instead, it merited just a few small pieces or blognotes.
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The WSJ reported that the Chinese yuan rose sharply against the dollar today and that this increase led to sharp rises in other Asian currencies as well. Put this one in the “who could have known?” category.
Many of the economists cited by major news outlets are undoubtedly surprised by this sequence of events. They have minimized the importance of a rise in the yuan to the U.S. trade deficit by insisting that the United States would simple turn to other producers as a source of imports.
Those who understand the economy pointed out that other Asian currencies tend to follow the yuan, so that a rise in the value of the yuan would likely also lead to a rise in the value of other currencies against the dollar. This means that the rise in the yuan is likely to reduce U.S. imports from China and other countries, thereby reducing imports and creating jobs.
The WSJ reported that the Chinese yuan rose sharply against the dollar today and that this increase led to sharp rises in other Asian currencies as well. Put this one in the “who could have known?” category.
Many of the economists cited by major news outlets are undoubtedly surprised by this sequence of events. They have minimized the importance of a rise in the yuan to the U.S. trade deficit by insisting that the United States would simple turn to other producers as a source of imports.
Those who understand the economy pointed out that other Asian currencies tend to follow the yuan, so that a rise in the value of the yuan would likely also lead to a rise in the value of other currencies against the dollar. This means that the rise in the yuan is likely to reduce U.S. imports from China and other countries, thereby reducing imports and creating jobs.
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We have been treated to articles in the Post and elsewhere about how employers can’t find qualified workers even though the unemployment rate remains near double-digit levels. The Washington Post editorial page gave us new evidence for this claim in an editorial that said there was at least some truth to claims that the Fed’s quantitative easing policy was responsible for higher food prices in Egypt and elsewhere.
The editorial tells readers:
“International commodity prices are set in dollars, so QEII means more dollars chasing the same supply of goods. The Food and Agricultural Organization calls the dollar’s post-September 2010 weakening a “leading factor” in commodity inflation.”
Both parts of this are wrong. Yes, food commodities, like other commodities, are typically traded in dollars, but this means absolutely zero in terms of food price inflation in other countries unless their governments have made a decision to link their currency to the dollar.
This one is easy to see. Suppose that the Fed’s action reduces the value of the dollar by 10 percent so that the price of wheat goes from $5.00 to $5.50 a bushel. That might sound like a 10 percent increase in the price of food. However, if the value of the dollar has fallen by 10 percent measured in wheat, it should also fall by 10 percent measured in Chinese yuan, Indian rupees, and Egyptian pounds. This means that there is no change in the price of wheat for people in these countries. (This is not true if the country has linked its currency to the dollar, but then the blame for higher food prices lies in this decision to link the currency, not the Fed’s actions.)
Of course, some food is sold under long-term contracts, which will usually be written in dollar terms. In this case, the people of Egypt or other countries will get cheaper food as a result of a weakening of the dollar.
The second part of the Post’s story is also wrong since there is little evidence of any decline in the dollar associated with QEII. The Fed’s data show the dollar falling a bit less than 3.0 percent in the months since QEII was announced. That is about the same decline as we saw the prior four months, so there does not seem to be much case of a plunge in the dollar due to QEII.
In short, the fact that food is priced in dollars does not affect the cost of food in Egypt and the dollar did not fall because of QEII, so there is not much of a case here. In fairness, the Post recognized that QEII was not the main cause of higher food prices, but it was wrong to treat it as any part of the cause, except insofar as it boosted growth in the U.S. In that way, the Fed would be as much to blame for higher food prices as Microsoft and Facebook if they announced a huge new investment plan.
We have been treated to articles in the Post and elsewhere about how employers can’t find qualified workers even though the unemployment rate remains near double-digit levels. The Washington Post editorial page gave us new evidence for this claim in an editorial that said there was at least some truth to claims that the Fed’s quantitative easing policy was responsible for higher food prices in Egypt and elsewhere.
The editorial tells readers:
“International commodity prices are set in dollars, so QEII means more dollars chasing the same supply of goods. The Food and Agricultural Organization calls the dollar’s post-September 2010 weakening a “leading factor” in commodity inflation.”
Both parts of this are wrong. Yes, food commodities, like other commodities, are typically traded in dollars, but this means absolutely zero in terms of food price inflation in other countries unless their governments have made a decision to link their currency to the dollar.
This one is easy to see. Suppose that the Fed’s action reduces the value of the dollar by 10 percent so that the price of wheat goes from $5.00 to $5.50 a bushel. That might sound like a 10 percent increase in the price of food. However, if the value of the dollar has fallen by 10 percent measured in wheat, it should also fall by 10 percent measured in Chinese yuan, Indian rupees, and Egyptian pounds. This means that there is no change in the price of wheat for people in these countries. (This is not true if the country has linked its currency to the dollar, but then the blame for higher food prices lies in this decision to link the currency, not the Fed’s actions.)
Of course, some food is sold under long-term contracts, which will usually be written in dollar terms. In this case, the people of Egypt or other countries will get cheaper food as a result of a weakening of the dollar.
The second part of the Post’s story is also wrong since there is little evidence of any decline in the dollar associated with QEII. The Fed’s data show the dollar falling a bit less than 3.0 percent in the months since QEII was announced. That is about the same decline as we saw the prior four months, so there does not seem to be much case of a plunge in the dollar due to QEII.
In short, the fact that food is priced in dollars does not affect the cost of food in Egypt and the dollar did not fall because of QEII, so there is not much of a case here. In fairness, the Post recognized that QEII was not the main cause of higher food prices, but it was wrong to treat it as any part of the cause, except insofar as it boosted growth in the U.S. In that way, the Fed would be as much to blame for higher food prices as Microsoft and Facebook if they announced a huge new investment plan.
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USA Today has a good piece on the devastation in central California following the collapse of its housing bubble. Meanwhile, Alan “who could have known” Greenspan was giving the keynote address at the Brookings Institution at a conference on restructuring the system of mortgage financing.
USA Today has a good piece on the devastation in central California following the collapse of its housing bubble. Meanwhile, Alan “who could have known” Greenspan was giving the keynote address at the Brookings Institution at a conference on restructuring the system of mortgage financing.
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Edward Glaeser is full of praise for the reign of Chicago Mayor Richard Daley. Among the items that he gives Daley credit for is a build-everywhere construction policy that Glaeser credits with keeping housing in Chicago affordable. He reports that the average condominium is about 30 percent cheaper in Chicago than in either New York or Boston.
Much of the reason for lower house prices in Chicago than in New York or Boston is that its housing market took a sharper plunge with the collapse of the housing bubble than in the other two cities. Prices were already lower in Chicago at the start of Daley’s tenure in 1989, however they increased by an almost identical amount as in Boston through the peak of the bubble in the summer of 2006 (137 percent for Chicago versus 138 percent for Boston), although the cumulative rise was 21 percentage points less than New York’s 158 percent. The biggest difference in housing costs between the three cities stems from the fact that house prices fell 27.8 percent from their peak in Chicago, compared to 21.0 percent in New York and just 14.0 percent in Boston.
It is not clear that Daley’s housing policy can be blamed for the greater volatility in Chicago’s house prices and it is always possible that the prices will fall more rapidly in New York and Boston going forward. However, if Glaeser had written his piece at the peak of the bubble, it would not have been possible to highlight lower housing costs in Chicago as one of the benefits of Daley’s tenure.
Edward Glaeser is full of praise for the reign of Chicago Mayor Richard Daley. Among the items that he gives Daley credit for is a build-everywhere construction policy that Glaeser credits with keeping housing in Chicago affordable. He reports that the average condominium is about 30 percent cheaper in Chicago than in either New York or Boston.
Much of the reason for lower house prices in Chicago than in New York or Boston is that its housing market took a sharper plunge with the collapse of the housing bubble than in the other two cities. Prices were already lower in Chicago at the start of Daley’s tenure in 1989, however they increased by an almost identical amount as in Boston through the peak of the bubble in the summer of 2006 (137 percent for Chicago versus 138 percent for Boston), although the cumulative rise was 21 percentage points less than New York’s 158 percent. The biggest difference in housing costs between the three cities stems from the fact that house prices fell 27.8 percent from their peak in Chicago, compared to 21.0 percent in New York and just 14.0 percent in Boston.
It is not clear that Daley’s housing policy can be blamed for the greater volatility in Chicago’s house prices and it is always possible that the prices will fall more rapidly in New York and Boston going forward. However, if Glaeser had written his piece at the peak of the bubble, it would not have been possible to highlight lower housing costs in Chicago as one of the benefits of Daley’s tenure.
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