Last week, humanitarian aid was at the center of discussion of the Venezuela crisis in the US, and evidently at the center of Juan Guaidó’s plans to challenge the Maduro government’s hold on power in the country. The New York Times noted that:

The battle over the legitimate leadership of Venezuela — which has included rallies of thousands, international diplomacy and oil sanctions — is now focused on a single heavily guarded shipment of humanitarian aid.

Venezuela’s opposition, which has relished a month of victories in its effort to challenge President Nicolás Maduro and take over as the country’s legitimate government, brought the donated supplies of food and medical kits to the country’s border with Colombia.

Its goal was to bring the supplies into Venezuela, forcing a confrontation with Mr. Maduro, who has refused the help. This would cast Mr. Maduro in a bad light, opposition leaders said, and display their ability to set up a government-like relief system in a nation where the crumbling economy has left many starving, sick and without access to medicine.

Dean Baker
Klamath Falls Herald and News, February 18, 2019

Dean Baker
Truthout, February 18, 2019

Dean Baker
The Hankyoreh, February 17, 2019

(This post first appeared on my Patreon page.)

I don’t consider myself an MMTer, but there is a basic Keynesian concept which has been associated with MMT, which is both true and important. For the federal government, taxes are not about raising revenue, taxes are about reducing consumption to prevent inflation.

The point is that the federal government does not need taxes for revenue since it can just print money. It instead taxes to create the room in the economy for government spending. This view is sometimes wrongly taken as a “get out of jail free” card, where the government can spend whatever it wants without worrying about raising revenue.

That could be true in a deep downturn. However, if the economy is near its full employment level of output, where additional demand will lead to rising inflation, we are pretty much back in the world where we need taxes to offset spending. Any major increase in government spending will lead to higher inflation unless we have higher taxes or have some other mechanism to reduce demand in the economy.

We can, of course, argue about how close the economy is to its full employment level of output. This is not easy to determine and the mainstream of the economics profession has badly erred on the high side in arguing that we were near full employment, when in fact the unemployment rate could (and did) go much lower.

But leaving the argument about where we hit full employment aside, we still have the basic truth that when we are near full employment, we do need higher taxes to offset additional spending. A small qualifier is worth adding here. We have a $20 trillion economy. We don’t have to worry about inflation because we spend another $2 billion or $5 billion a year on some program we think is important. (That would be 0.01 percent to 0.0025 percent of GDP.) We do have to worry about inflation if we want to spend another $200 billion a year on a big education or health care program.

The New York Times ran a piece headlined "Europe's middle class is shrinking. Spain bears much of the pain." The gist of the piece is that the middle class in Europe, and especially Spain is disappearing as the result of some mysterious process.

It tells readers:

"Spain’s economy, like the rest of Europe’s, is growing faster than before the 2008 financial crisis and creating jobs. But the work they could find pays a fraction of the combined 80,000-euro annual income they once earned. By summer, they figure they will no longer be able to pay their mortgage." [The "they" refers to a formerly middle class couple who lost jobs in the downturn and had to find new jobs at far lower pay."

The piece continues:

"It is a precarious situation felt by millions of Europeans.

"Since the recession of the late 2000s, the middle class has shrunk in over two-thirds of the European Union, echoing a similar decline in the United States and reversing two decades of expansion. While middle-class households are more prevalent in Europe than in the United States — around 60 percent, compared with just over 50 percent in America — they face unprecedented levels of vulnerability. ...

"The hurdles to keeping their status, or recovering lost ground, are higher given post-recession labor dynamics. The loss of middle-income jobs, weakened social protections and skill mismatches have reduced economic mobility and widened income inequality. Automation and globalization are deepening the divides."

Just about every part of this story is wrong, as a quick look at the data would show. To start with, Spain and most other European countries are not growing faster than before the recession. According to the IMF, Spain's economy grew at a 2.7 percent rate in 2018 and is projected to grow 2.2 percent this year. By comparison, it grew at an average rate of more than 3.9 percent in 2006 and 2007, the last two years before the recession.

Spain's per capita GDP was just 3.0 percent higher in 2018 than it was in 2007. By comparison, coming out of the Great Depression in the United States, per capita income in 1940 was more than 8.0 percent higher than in 1929.

February 13, 2019

February 13, 2019 (Prices Byte)

February 2019, Alan Barber and Hayley Brown

By February 18th, someone making $1,000,000 in 2019 will have stopped paying into Social Security for the year. Social Security, which provides retirement, disability, and survivor benefits to countless Americans every year, only taxes the first $132,900

Jake Johnston
The Haitian Times, February 12, 2019

February 12 marks the introduction of the Family and Medical Insurance Leave Act (FAMILY Act) into both houses of Congress. The FAMILY Act would create a national paid leave program that would cover working people across the country. It would allow moms a

As the percentage of workers who can count on a traditional defined-benefit pension is falling rapidly, we have been lowering the Social Security benefits relative to their earnings. This reduction in benefits has not been widely noted because it takes the form of an increase in the age at which workers can receive their full benefits. This had been age 65 for workers who reached age 62 before 2003.

The age for full benefits then rose gradually to age 66 for workers who reached age 62 after 2008. It remained at this age until 2017, at which point it again began to increase, reaching 67 for workers who turn 62 after 2022. This increase in the age for full benefits amounts to roughly a 12 percent reduction in the value of a worker’s Social Security.

There was a further reduction in the 1990s that received little attention because of its technical nature. Benefits are indexed after retirement to the rate of inflation as measured by the Consumer Price Index (CPI).

Dean Baker
Truthout, February 11, 2019

I guess we can always count on The Washington Post to print misleading pieces calling for cuts in Social Security. After all, what are newspapers for? Anyhow, Robert Samuelson gives us one of his usual tirades, misrepresenting most of the key items in the debate.

The basis of his outrage is a bill proposed by Representative John Larson to increase Social Security. The proposal is for a modest overall increase in benefits with a larger increase for the poor. The proposal also calls for indexing benefits to a cost of living index designed to monitor the expenses faced by seniors, instead of the population as a whole. Samuelson complains that this could lead to higher benefits.

The gist of Samuelson's argument is that seniors are doing very well right now. He cites a recently done study by C. Adam Bee and Joshua Mitchell, two economists who were at the Census Bureau at the time, that found, based on tax filings that seniors had higher incomes than we had realized.

While the study did show seniors were doing better than earlier survey data, the picture is not altogether positive. For example, the average income for seniors in the bottom decile is just $7,500, for the second decile it's $13,000. It probably would not seem too outrageous to most people to want to give these people somewhat higher benefits. Even for the 5th decile, the average income was only $32,500. (These figures are all in 2012 dollars, so add about 15 percent to put them in today's dollars.)

But perhaps more importantly, the main reason Bee and Mitchell found higher income levels than previous data is under-reported pension income. Samuelson misleading reports the issue by saying that most of the "underreporting involve income from IRAs, 401(k) plans and traditional pensions." Actually, for middle-income households under-reporting of 401(k) income was pretty much irrelevant. The problem was missed pension income.

(This piece first appeared as a post on my Patreon page.)

There is an old saying that the economy is too simple for economists to understand. There is plenty of evidence of this all around. After all, almost no economists could see the $8 trillion housing bubble, the collapse of which gave us the great recession. Back in the stock bubble days of the late 1990s, leading economists in both political parties wanted to put Social Security money in the stock market based on assumptions of returns which were at the least incredibly implausible, if not altogether impossible.

The endless scare stories of robots taking all the jobs, or the threat of automation, fit this model. While this is a recurring theme in major media outlets, it basically makes zero sense.

Replacing human labor with technology is a very old story. It’s called “productivity growth.” We’ve been seeing it pretty much as long as we have had a capitalist economy. In fact, this is what allows for sustained improvements in living standards. If we had not seen massive productivity growth in agriculture, then the bulk of the country would still be working on farms. Otherwise, we would be going hungry.

However, thanks to a massive improvement in technology, less than 2 percent of our workforce is now employed in agriculture. And, we can still export large amounts of food.