Dean Baker
Truthout, March 4, 2013

Mark WeisbrotThe Guardian Unlimited, March 3, 2013

I'm not kidding, it's right there in the Washington Post. And we thought Bob Woodward was creative.

But Samuelson's economic history is even more striking than the linking of Kennedy to the sequester. He notes the fiscal stimulus that was sparked by the Kennedy tax cuts (and the Vietnam War and Johnson's Great Society programs) and the boom that resulted, and tells us that "it was a disaster."

"High inflation was the first shock. An initial boom (by 1969, unemployment was 3.5 percent) spawned a wage-price spiral. With government seeming to guarantee 4 percent unemployment, workers and businesses had little reason to restrain wages and prices. In 1960, inflation was 1 percent; by 1980, it was 13 percent. The economy became less stable. From 1969 to 1982, there were four recessions, as the Federal Reserve alternated between trying to push unemployment down and prevent inflation from going up. Only in the early 1980s did the Fed, under Paul Volcker and with Ronald Reagan’s support, crush inflationary psychology."

Before looking at Samuelson's horror story here, it is worth noting what happened in the boom, which can be treated as going through 1973, in spite of the recession in 1969. Growth over the 10 years from 1963 to 1973 averaged 4.4 percent, by far the most rapid stretch in the post-World War II era.

The unemployment rate hovered near 4.0 percent for most of this period, as Samuelson complains. This led to large gains in real wages and sharp declines in poverty. The overall poverty rate fell from 19.5 percent in 1963 percent to 11.1 percent in 1973, an all-time low. For African Americans the poverty rate fell from 55.1 percent in 1959 (annual data is not available) to 31.4 percent in 1973. I suspect most folks wouldn't mind a few more disasters like this one.

I realize that Pew is a very prestigious outfit, but Pew's garbage is still garbage. Its report on wealth by age group, or at least the interpretation that it and others have given this report, fits the bill.

A couple of years ago, Pew did an analysis that gave breakdowns of wealth by age group. It found that the median household over the age of 65 had $170,500 in net worth. I was actually pleased that they came up with this number, since it meant that the projections that I had done more than two years earlier with my colleague David Rosnick were almost right on the nose. It's always gratifying to see other researchers independently corroborate your findings. 

But what was remarkable about this report was that the Pew researchers took this number as evidence of the affluence of the elderly. The study points out that this was a 42 percent real increase from the 1984 level. By contrast, households under age 35 saw their median net worth fall by 68 percent to just $3,700. This disparity in wealth by age continues to be the take away from this report in the media.

To realize the absurdity of this position, try thinking for a moment. The bulk of people who are now turning age 65 do not have a defined benefit pension. (They did in 1984.) This means that the only income they have is their Social Security check, which averages a bit over $1,200 a month. Right off the bat, $100 a month is subtracted to pay for their Medicare Part B premium. This means that our high living seniors have an income of $1,100 a month, plus their $170,500 in net worth.

Is this rich? My guess is that 90 percent of the reporters who have covered this Pew study have no clue what net worth means. The $170,000 figure includes every asset that seniors own. That means everything in retirement accounts and other personal savings, the value of their car and the equity in their home. To put this in perspective, the median house price is roughly $180,000. That means that if our typical senior household sold off every other asset they held they would have roughly enough money to pay off their mortgage. Then they would be entirely dependent on their Social Security check to support themselves.

It is always painful to see an economist do battle with an accounting identity. Martin Feldstein takes on the task in a piece that explains that the dollar could fall sharply in the future, if investors come to expect its decline.

Most of what Feldstein says in this piece is exactly right. Investors do not need to hold dollars as a safe haven and in fact it is not a safe haven if it is falling in value against other currencies. Also, the vast majority of foreign dollar holdings are not necessary as foreign exchange reserves to finance trade. This means that we could in fact see large declines in the value of the dollar in the future.

The conflict with national income accounting comes in Feldstein's takeaway:

"And, despite a more competitive exchange rate, the US continues to run a large current-account deficit. If progress is not made in reducing the projected fiscal imbalances and limiting the growth of bank reserves, reduced demand for dollar assets could cause the dollar to fall more rapidly and the interest rate on dollar securities to rise."

Okay, if we reduce our fiscal imbalances and there is no decline in the dollar (remember, that is the bad news in this story) then what will happen to employment? Feldstein can't seriously believe that investment in equipment and software will increase substantially from what is already a reasonably high level measured as a share of GDP. He also can't expect that consumption will rise substantially given that the savings rate is already at a very low level compared to the post World War II average. And with enormous overbuilding in both the residential and non-residential sector, he can't think that construction will fill the gap in demand that will result from smaller deficits.

This would mean that the policy he is advocating is that we should deliberately slow growth and raise unemployment because if we don't the dollar will fall in the future. This would seem to contradict both common sense and what Feldstein himself has advocated in the past: allowing the dollar to fall to boost net exports.

Jake Johnston
Caribbean Journal, March 1, 2013

The Bipartisan Policy Center's Housing Commission released its report, Housing America's Future, on housing policy this week. Its recommendations include winding down Fannie Mae and Freddie Mac, and limiting federal government involvement in mortgages to a "Public Guarantor." In a post originally published by the National Housing Institute. Dean Baker responded.

There is a good argument for having a public company like the old Fannie Mae sustain a secondary market in mortgages. Fannie Mae created this market in the 1930s. It was able to substantially reduce regional differences in mortgage costs and availability, with minimal operating expenses. This publicly-run company was a success by any reasonable measure.

We also know that the private market can provide housing finance without any direct support from the government. This is demonstrated by jumbo mortgages, which typically carried a premium of 25-50 basis points above conformable mortgages.

Given these successful routes for providing housing finance, the Bipartisan Policy Center took the natural path for people in Washington: a proven failure.

Instead of opting for either a public company or companies to sustain the secondary market or leaving finance to the private sector, the Bipartisan Policy Center opted for the sort of public-private mix that we saw with Fannie Mae and Freddie Mac in the years leading up to the housing crash. They want the government to guarantee investors’ stakes in mortgage backed securities.

Noah Smith of Noahpinion takes me to task (after some very nice comments) for being anti-immigration. I’m not sure I fit that description, but let me put together a few things that I have said in different places. 

First of all, there is the immediate issue of what we do with the undocumented workers who are already here. I don’t see much ambiguity on this one; they should be allowed to normalize their status and become citizens. These people are here as a matter of government policy even if they are working in violation of the law.

The government may often be less competent than we would like, but if the policy was to prevent foreigners without proper documents from working in the United States, then we would not have many millions of foreigners working without proper documents. We shouldn’t blame people who came here (like many of our parents or grandparents) to try to secure a better life for themselves and their children. If we want to punish someone for this violation of the law, we can always throw their employers behind bars.

The question is really how we structure immigration policy going forward. Noah argues the merits for having an open door for high-skilled immigrants. I am 100 percent for this policy, although I may draw the line in a somewhat different place than Noah. I absolutely want to see more foreign doctors, dentists, lawyers and other professionals in the United States.

The federal Family and Medical Leave Act (FMLA) celebrated its 20th anniversary this month. It was a huge step forward for the U.S., which lags behind nearly all other high-income countries in enabling people to take the time they need, without worrying that they may be fired from their jobs, to care for themselves and their families when faced with serious illness or welcoming a new child.

The FMLA has been used 100 million times in the last 20 years, benefiting families and without unduly burdening employers. Yet there remain millions of Americans who are not covered by the FMLA – they can still be fired if they get sick, have a baby, or need to care for a seriously ill family member. And millions more are eligible but do not take the time off because they do not know they are eligible or can’t afford to go without pay.

Department of Labor surveys of experiences with the FMLA, released earlier this month, find ways to improve the effectiveness and increase the coverage of family and medical leave for American families. CEPR senior economist Eileen Appelbaum recently wrote a series of blog posts to review these findings of the FMLA surveys and draw lessons about what to do next.