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Article Artículo

Larry Kotlikoff Tells Us Why We Should Not Use Infinite Horizon Budget Accounting

In a New York Times column, Boston University economist Larry Kotlikoff told readers why we should not use infinite horizon budget accounting. Kotlikoff showed how this accounting could be used to scare people to promote a political agenda, while providing no information whatsoever.

For example, after telling us how much money his 94-year-old mother is drawing from Social Security and a widow's benefit from his father's job he ominously reports:

"you’ll find that the program’s unfunded obligation is $24.9 trillion 'through the infinite horizon' (or a mere $10.6 trillion, as calculated through 2088). That’s nearly twice the $12.6 trillion in public debt held by the United States government."

Are you scared? Hey $24.9 trillion a really big number. That's more than even Bill Gates will see in his lifetime. Does it mean our kids will be living in poverty?

Not exactly. Kotlikoff could have pulled a number from the same table in the Social Security trustees report to tell readers that the unfunded liability is equal to 1.4 percent of future income. If we just restrict our focus to the 75-year planning horizon (sorry folks, we don't get to make policy for people living 100 years from now), the shortfall is 1.0 percent of GDP.

That's not trivial, but it is considerably less than the combined cost of Iraq and Afghanistan wars at their peak. Furthermore, if we go out 40 years and assume that our children get their share of the economy's growth (as opposed to a situation in which it all goes to Bill Gates' kids), their before tax income will be more than 80 percent higher than it is today.

This means that even if they pay 2-3 percentage points more in Social Security taxes to cover the cost of their longer retirements (they will live longer than us), they will still have incomes that are more than 70 percent higher than we do today. Are you scared yet?

Dean Baker / August 01, 2014

Article Artículo

Argentina

Bolivia

Brazil

Ecuador

Latin America and the Caribbean

World

Update on Latin American Responses to Israel's Siege on Gaza

[Below is an update to the blog post from July 21 reviewing how Latin America's political leaders responded to Israel's siege on Gaza.]

In a coordinated move on Tuesday (July 29), several Latin American countries recalled their ambassadors to Israel, including El Salvador, Chile, and Peru, the latter two of which made a point to say they had consulted with each other before announcing their decision. This means that five countries so far have recalled their ambassadors over Israel’s attack on Gaza which began July 8th, since Brazil and Ecuador had done so earlier. According to reports from Haaretz, Israel’s Foreign Ministry responded by saying that El Salvador, Peru and Chile were encouraging Hamas by recalling their ambassadors. 

El Salvador announced its decision to recall its ambassador over “the serious escalation in violence and the realization of indiscriminate bombing from Israel into the Gaza Strip,” which they say has resulted in many deaths, injuries, an exodus of Palestinians fleeing their homes, and serious material damage. Chile recalled its ambassador the same day (July 29), saying that Israel’s military operations “comprise a collective punishment against the civilian population of Palestine in Gaza.” The same statement from Chile condemns rocket launches by Hamas against civilians in Israel, but argues that Israeli operations in Gaza “violate the principle of proportionality in the use of force, an indispensable requirement for the justification of legitimate defense.” The government of Peru recalled its ambassador and said that Israel’s military operations in Gaza “constitute a new and reiterated violation of the basic norms of international humanitarian law.”

In addition, several countries put out new statements reacting to the conflict.

CEPR and Stephan Lefebvre / July 31, 2014

Article Artículo

Haiti

Latin America and the Caribbean

World

US Congress Passes Aid Accountability Legislation as Local Procurement Falls in Haiti

More than four-and-a-half years after the devastating earthquake in Haiti, the U.S. Congress passed legislation on Friday demanding greater accountability and transparency in U.S. relief and reconstruction efforts. “[W]e need to provide more accountability of our efforts to rebuild Haiti as we work to produce sustainable local capacity and strengthen democratic institutions,” said Rep. Barbara Lee (D-CA), in a press release praising the bill’s passage.

In April 2013, CEPR published “Breaking Open the Black Box: Increasing Aid Transparency and Accountability in Haiti.” The report concluded that “the lack of real transparency around U.S. assistance to Haiti makes it much more difficult to identify problems and take corrective measures.” Among the recommendations made in the report, many have been included in the recent legislation, such as: reporting sub-award contract data, prioritizing local procurement and the involvement of local civil society, releasing data at the project level and including benchmarks and goals, and increasing the amount of information published in Haitian Creole.

The Assessing Progress in Haiti Act, as the bill is known, will require the Secretary of State to submit to Congress a report every 6 months detailing the U.S. government strategy in Haiti, including program goals and outcomes. Crucially, the bill also requires reporting on “amounts committed, obligated, and expended on programs and activities to implement the Strategy, by sector and by implementing partner at the prime and subprime levels,” making it far easier to track where the money goes and who is the ultimate recipient.

It has been U.S. policy to increase local procurement worldwide as part of an ambitious reform program called USAID Forward. However, the new bill will ensure that the U.S. carries this out in its Haiti policy, something that has taken on extra importance as recent data released by USAID shows the level of local procurement actually decreased in 2013 from 2012.

Local procurement data recently posted (XLS) on the USAID Forward website reveals that just over $4 million, or 2 percent of all USAID spending went to local companies or organizations in Haiti. This is down from $11.3 million (5.4 percent) in 2012. Overall expenditures for Haiti decreased from $209.5 to $198 million, according to the database. Worldwide, the level of local procurement actually increased, from 14.3 to 17.9 percent, showing just how far behind U.S. policy in Haiti is.

Jake Johnston / July 28, 2014