Apparently the Washington Post editorial board is partying over the fact that bankruptcy judges are imposing cuts in the pensions of retired public sector employees in Detroit, Michigan and Vallejo, California. An editorial in today's paper noted these cuts and told readers:

"Yet in many jurisdictions the balance has tipped too far in favor of ­public-employee benefits, largely because neither public-sector unions nor the politicians whose campaigns the unions support have any incentive to budget more realistically. Unsustainable pensions helped cause the recent wave of municipal bankruptcies that has touched cities as different as Detroit and Vallejo, Calif."

Okay, so the balance has tipped too far in favor of public-employee benefits and is "unsustainable."

So those retired public sector workers must be living really well. In Detroit the average non-uniformed public sector employee gets a pension of $18,500 a year. This goes along with an average annual wage for active workers of $42,000 a year. At the Washington Post this is apparently an imbalance where things have gotten too tilted for public sector workers. 

Like a Matryoshka doll, inside each cholera elimination initiative for Haiti one will find another and inside that, yet another. At the two-year anniversary of the earthquake, in January 2012, organizations launched a “call to action” for the elimination of cholera. Almost a year later, in December 2012, the U.N. launched a “new” initiative designed to “support an existing campaign.” Then in February 2013, the Haitian government and international partners announced a 10-year elimination plan. When funding was slow to come, the U.N. and other partners began raising funds for a two-year emergency response. In March of 2014, another “high-level” committee was formed and then in July, U.N. Secretary General Ban Ki-moon traveled to Haiti to launch a “Total Sanitation” campaign within the “context” of the cholera elimination plan. Since that first announcement in 2012, 1,600 Haitians have died from cholera. Today, in a “high-level” donor conference sponsored by the World Bank, the Haitian government presented yet another plan.

“We have a plan, it’s a $310 million plan for three years,” Haitian Prime Minister Laurent Lamothe told the crowded 13^th floor conference room in the World Bank headquarters here in Washington, DC. Lamothe urged those in attendance to “take action” and “fast-track this process” in order to “protect the lives of millions of people” and “ensure the most vulnerable of the society are protected against water-borne diseases.” But the 2.5-hour conference ended up short on pledges and long on pleas, with only the event’s sponsor, the World Bank, contributing substantial funds.

Cholera, which scientific studies have found was introduced to Haiti by United Nations troops in 2010, has so far killed at least 8,614 and sickened over 700,000. While no speakers at the conference mentioned how the disease was imported to Haiti, Lamothe did play a short video, in which the narrator explains that, “based on press reports, it [cholera] originated on a Nepalese camp of the United Nations peacekeeping mission in Haiti, MINUSTAH.” Later in the video, a Haitian explains how he blamed the U.N. for cholera’s introduction. Meanwhile, lawyers and human rights groups continue to press for U.N. responsibility through the courts. A federal court in New York will hear oral arguments on the U.N.’s immunity on October 23.

“The UN has a binding international law obligation to install the water and sanitation infrastructure necessary to control the cholera epidemic, as well as compensate those injured,” said Brian Concannon of the Institute for Justice & Democracy in Haiti, who is representing cholera victims in their case against the U.N. “MINUSTAH has spent far more than $2 billion since cholera broke out on other things. It is a question of priorities.”

While the U.N. has refused to accept responsibility for the disease’s introduction or take direct remedial actions, in December 2012 Ban pledged to “use every opportunity” to raise the necessary funds for cholera elimination and has since cited the U.N.’s “moral obligation” to respond to cholera. Despite the support, actors have thus far failed to raise an adequate amount of funds for the eradication plan. At the conference, Ban stated that “as of today, the $2.2 billion 10-year national plan is just 10 percent funded. While a lot has been done, there is clearly much more to do.”

The following reports on labor market policy were recently released:

Center for American Progress

Harnessing the EITC and Other Tax Credits to Promote Financial Stability and Economic Mobility
Rebecca Vallas, Melissa Boteach, and Rachel West

Nicole Woo
October 9, 2014, The Hill

There's an old saying in economics that it doesn't matter if what you say is right, what matters is if the right person says it. I was reminded of this line when I read Matt O'Brien's Wonkblog post on the success of the Fed in allowing the unemployment rate to fall below the nearly universally accepted measure of the NAIRU, without having any notable acceleration of inflation. 

This is a great history that should be tattooed on the forehead of everyone involved in the current debate on how low the unemployment rate can go without kicking off a wage price spiral. Back in the mid-1990s all right thinking economists thought that the NAIRU was in the neighborhood of 6.0 percent. This meant that if the unemployment rate was below 6.0 percent the inflation rate would begin to increase. And, it would keep increasing as long as the unemployment rate stayed below 6.0 percent.

While there was some difference on the precise number (the usual range went from 5.6 percent to 6.4 percent), there was almost no dispute on the basic point. As O'Brien notes, even Janet Yellen adhered to this view, expressing concerns in 1996 that if the Fed didn't raise interest rates inflation would be a big problem. (Paul Krugman also expressed a similar view at the time.)

Thanks to the eccentricities of Alan Greenspan, the Fed did not raise interest rates. Instead it allowed the unemployment to continue to fall. It fell below 5.0 percent in 1997, it crossed 4.5 in 1998, and reached 4.0 percent as a year-round average. And inflation remained tame. The result was that millions of people had jobs who would not have otherwise. Tens of millions of workers at the middle and bottom of the wage distribution saw substantial real wage gains for the first time in a quarter century.

And, for the folks fixated on budget deficits, we saw a large surplus for the first time in decades. As much as the Clintonites like to boast of their great surpluses, the reality is that the budget would have remained in deficit if Clinton's Fed appointees (Janet Yellen and Lawrence Meyer) had gotten their way. It is only because the Fed allowed the unemployment rate to fall far lower than these folks thought wise that the budget shifted from deficit to surplus. (In 1996 the Congressional Budget Office projected a deficit of $240 billion [2.5 percent of GDP] for 2000. In fact, we ran a surplus of roughly the same amount. According to CBO, the legislative changes over this four year period went a small amount in the wrong direction.)

Anyhow, all of this should be a good reminder that the whole of the economics profession can be completely wrong on the most important issues affecting the economy. But that isn't why I brought you here today.

On October 12, Bolivians will go to the polls to choose their next president for a five-year term. Recent polling suggests that the incumbent, Evo Morales, will obtain a decisive first-round victory over his closest opponent, Samuel Doria Medina. Below are ten graphs on economic and social developments since Evo’s election in 2005 that help explain the strong support for his re-election.

 

      1. Economic Growth: Bolivia has grown much faster over the last 8 years under President Evo Morales than in any period over the past three-and-a-half decades.

Source: International Monetary Fund.

Dean Baker
October 7, 2014, Real-World Economics Review

Dean Baker
September 22, 2014

Mark Weisbrot05 de Octubre 2014, Últimas Noticias

Dean Baker
October 6, 2014, Truthout

It might help editorial page editor Fred Hiatt understand how the budget works. He is appalled because "reactionary defenders" of Social Security think that seniors should be able to get the benefits they paid for. (I wonder if it's reactionary to think that Peter Peterson type billionaires should be able to get the interest on the government bonds that they paid for.)

Anyhow, the basis for Hiatt's fury is that John Podesta, now a top advisor to President Obama, is boasting about entitlements having been brought under control. To Hiatt this is outrageous.

"Federal debt has reached 74 percent of the economy’s annual output (GDP), 'a higher percentage than at any point in U.S. history except a brief period around World War II,' the CBO says, 'and almost twice the percentage at the end of 2008.' With no change in policy, that percentage will hold steady or decline a bit for a couple of years and then start rising again, to a dangerous 78 percent by 2024 and an insupportable 106 percent by 2039."

Yep, the debt is much higher today than in 2008, so what? Millions of people lost their jobs due to the collapse of the economy. The deficits of the last six years created demand that would not otherwise have been there. It led to more growth and put people back to work. To those in the real world, people losing their jobs and losing their homes, would be the big story. This means kids growing up with unemployed parents and maybe hustling from house to house or even living on the street. But hey, Fred Hiatt wants us to worry about the deficit in 2039.

Just to be clear, the gloom and doom story is all Hiatt's not CBO's, although some readers may be confused by the presentation. There is no obvious negative consequence to a debt to GDP ratio of 74 percent, although readers can get that Fred Hiatt doesn't like it. Nor is there any obvious negative consequence to a debt to GDP of 78 percent by 2024, even if Fred Hiatt calls it "dangerous."

And the assertion that a debt to GDP ratio of 106 percent is insupportable is just Fred Hiatt's invention. There are many countries that have much higher debt to GDP ratios today (Japan's is more than twice as high) and continue to pay very low interest rates on long-term debt. In other words, Fred Hiatt is just like the little kid who who is worried about the monster under his bed when the lights are turned off. Undoubtedly it is very real to him, but when you turn on the lights you can see there is nothing there.

I am not usually inclined to defend the economics profession, but Robert Samuelson brings out my defensive impulse in his discussion of Financial Time columnist Martin Wolf's new book (which I have not read). Before getting to the main matter at hand, it's worth making a couple of other points.

First, Samuelson tells us that Wolf's explanation of the financial crisis goes via the way of the U.S. trade deficit:

"The trade-surplus countries couldn’t spend all their export earnings, so they plowed the excesses into dollar investments (prominently: U.S. Treasury bonds) and euro securities. This flood of money reduced interest rates. The resulting easy credit induced dubious lending, led by housing mortgages."

This is partly right and partly wrong. (I don't know if the problem is in Wolf's book or Samuels' retelling.) The wrong part is the claim that the trade surplus countries couldn't spend all their export earnings. This makes no sense on its face. They have no need to spend their export earnings. If they have dollars that they don't want they just dump the dollars. It's just like if someone who has shares of a stock they don't want. They dump the stock.

What happened in this period is that foreign central banks bought the dollars from their exporters and then used the money to buy up U.S. government bonds. This was a conscious decision to prop up the value of the dollar against their currencies. This was done to preserve their export advantages.

If they had just sat back and let the market clear, the dollar would have fallen and the U.S. trade deficit would have shrunk. This is all pretty much econ 101 stuff that Wolf should have gotten straight (perhaps he did).

The part that is completely right is that the gap in demand created by the trade deficit (our spending was creating demand in Europe and China, not the United States) created a huge hole in demand that could be filled by the housing bubble. If we had something closer to balanced trade back in the middle of the last decade then the buildup of a housing bubble would have almost certainly led to higher interest rates and higher inflation. This would have choked off the bubble before it grew too large. So in this sense, Wolf is 100 percent on the money in blaming the bubble on the trade deficit.