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Article Artículo

Economic Growth

United States

The Federal Reserve Board and Aid to Lower-Income Families

Donald Trump will soon make a decision on whether to reappoint Janet Yellen as chair of the Federal Reserve Board or to pick someone else. This decision is getting far less attention than it deserves.

The Fed makes an enormous difference in the lives of tens of millions of people, especially low- and moderate-income people. Its decisions on interest rate policy can determine how many people in the country have jobs. If the Fed raises interest rates and slows the rate of job creation, the people who are most affected are the most disadvantaged in society. Blacks, Hispanics, and the less educated will be the ones who are most likely to be denied jobs as a result of higher interest rates.

Furthermore, a weaker labor market also reduces the bargaining power of those who do have jobs. This means that they will get lower wages than if we had a lower unemployment rate.

Dean Baker and Daniella Zessoules / September 26, 2017

Article Artículo

Republicans and Budget Deficits: They Don't Care

My friend and occasional co-author, Jared Bernstein, had a piece in the NYT saying that Republicans don't care about budget deficits. The evidence certainly supports that view. As Jared points out, they repeatedly push through large tax cuts that come with no offsetting cuts in spending. As fans of arithmetic everywhere know, if you spend the same amount (sometimes they increase spending, by appropriating more money for things like prisons, walls, and the military), and take in less money, then you have a larger deficit.

Presumably, people who keep acting to raise the budget deficit, don't care about high budget deficits. I'll add two points here.

First, the media, including often the NYT, cover for Republicans on this issue by telling their audience that Republicans "believe" that lower taxes increase growth, thereby raising enough revenue to offset the tax cut. This is incredibly irresponsible reporting. (You could even call it "fake news.")

Reporters don't know what the politicians believe. When they assert politicians "believe" something to be true, they are just making things up. As we all know, politicians don't always tell the truth. Reporters know what politicians say, not what they believe. Furthermore, since the assertion is so obviously not true, it seems unlikely that many Republican politicians really believe it.

The responsible way to report on this issue is to tell readers that a politician "claims" or "says" that tax cuts will pay for themselves with stronger growth. (A BTP reader told me of an exchange with a NYT reporter in which the reporter said that the NYT doesn't use the word "claims," because it implies that the person may not be telling the truth. If this is the case, that is an unfortunate feature of NYT's reporting.)

CEPR / September 26, 2017

Article Artículo

Drug Patents and the Government Debt: Written So Even an Economist Can Understand

With the Republicans promising big tax cuts for their wealthy backers, we are again hearing talk about the budget deficit and national debt. Needless to say, most is pretty badly confused.

At the most basic level, insofar as there is a burden of the debt, it is the interest payments on the debt. This is the amount of money that the government has to cough up each year to pay bondholders as opposed to using for other purposes.

While the debt is high relative to GDP, interest on the debt is actually fairly low. It is currently around 0.8 percent of GDP, or roughly $160 billion a year. This is near a post-World War II low. In the 1990s, the interest peaked at more than 3.0 percent of GDP.

Many people overstate the interest burden because they ignore the money that the Federal Reserve Board refunds to the government, which is presently around $90 billion a year. The Fed is collecting a substantial portion of the interest paid by the federal government due to the fact that it holds a large amount of government bonds. It keeps some of the interest to fund its operations and then rebates the rest to the Treasury.

Incredibly, there has been literally no coverage in major news outlets of the budgetary implications of the Fed's plans to reduce its asset holdings. When the Fed sells off these assets, the interest will instead be paid out to the people who buy the bonds rather than refunded to the Treasury. The difference could come to as much as $600 billion over the next decade, roughly the amount of money at stake with Obamacare repeal, but no one seems to care.

CEPR / September 22, 2017

Article Artículo

Why Don't Normal Liability Rules Put Equifax Out of Business?

Bryce Covert has an interesting column in the NYT arguing that Equifax and the other two private credit agencies be replaced with a public system. There does seem to be a good case here.

After all, what do we get from competition in this story? As Covert points out, the credit agencies don't work for consumers, they work for the people who buy the data. This means that they don't really have much incentive to ensure their information about us is accurate and to make sure their systems are not hacked.

What is difficult understand is how current laws allow these agencies to be profitable. Suppose these credit agencies were held liable for their mistakes. If a person is denied a job or is unable to buy a home because of an erroneous credit report, this would seem to warrant tens of thousands of dollars in damages.

Covert tells us that one in four credit reports contain a major error. Suppose that leads to 100,000 people a year to suffer serious consequences, that would be less than 0.25 percent of the people with serious errors in their report. If the average damages come to $15,000 (including legal fees), this would run to $1.5 billion in annual damage payments. If 1.0 percent of the people with erroneous reports suffered consequences, it would come to $6 billion a year.

CEPR / September 21, 2017

Article Artículo

Affordable Care Act

A Warning for the Washington Post's Fact Checker on Single Payer Costs

Glenn Kessler, the Washington Post's Fact Checker, is trying to be even-handed in assessing the claim by advocates of single-payer health insurance of large potential administrative savings from switching to a universal Medicare-type system. Unfortunately, he gives too much credence to an insurance industry funded report (identified as such in the piece), which whittles away at the difference.

The basic story is that Medicare's administrative costs, as shown in the Medicare Trustees Report come to less than 2.0 percent of annual benefits. (Table II.B1 puts administrative costs for 2016 at $9.2 billion, with total payments at $669.5 billion.) The Centers for Medicare and Medicaid Services puts the administrative costs for private insurance at $216.3 billion for 2016 (Table 2), with total spending of $1,135.4 billion (Table 3) for a ratio administrative expenses as a percent of related outlays of 23.5 percent. (The administrative expenses are deducted from total spending to get health related outlays.)

While there is some room for fudging both of these numbers, it is pretty hard to make the difference go away. The industry funded study ups the Medicare costs to 5.2 percent by allocating a large amount of non-Medicare spending to Medicare administration. For example, it notes that the Treasury Department collects taxes for Medicare and the Justice Department pursues fraud cases in the system. As the report explains to get to this number:

"Medicare unreported costs include parts of salaries for legislators, staff and others working on Medicare, building costs, marketing costs, collection of premiums and taxes, and accounting, including auditing and fraud issues, etc."

While these costs are not detailed carefully, Table 4 in the appendix shows that the study allocated 14.5 percent of the salaries of members of Congress and staff, as well executive branch salaries, to the administrative costs of Medicare. It also allocated 14.5 percent of non-correctional judicial costs.

CEPR / September 19, 2017