AlterNet.org: Dean Baker http://www.alternet.org/authors/dean-baker-0 en Wall Street Journal Says $19,000 a Year Is Adequate Middle-Class Retirement Income http://www.alternet.org/economy/wall-street-journal-says-19000-year-adequate-middle-class-retirement-income <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">The right-wing war on Social Security increases.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/shutterstock_money_worries_1.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>While economic debates can often get into complex questions of theory or statistical methods, many hang on more simple issues, like the right adjective. We got a great example of one such debate in a Wall Street journal <a href="http://www.wsj.com/articles/new-evidence-on-the-phony-retirement-crisis-1451952646">column</a> by Andrew Biggs, an economist at the American Enterprise Institute and former Deputy Commissioner of the Social Security Administration under President George W. Bush. </p><p>Biggs looks at some recent evidence, most notably a new study from the Congressional Budget Office (CBO), and dismisses the idea that there is a retirement crisis. At the center of this assertion is the CBO projection that a typical household in the middle quintile, born in 1960, can expect to get $19,000 a year from Social Security. Biggs sees this $19,000 as replacing 56 percent of pre-retirement income and says this is not far from the 70-80 percent usually viewed as adequate. He then touts data on total retirement savings and pronounces everything as okay.</p><p>If we step back from replacement rates, we can ask a rhetorical question, is $19,000 a year a middle class income? Odds are that most people would not consider $19,000 a reasonable income for a middle class household, hence the basis for the claim about a retirement crisis. Biggs does point to the record amount of retirement savings. This is indeed good news for those who have these savings, but unfortunately most middle class households don't fall into this category.</p><p>According to the Federal Reserve Board's 2013 <a href="http://cepr.net/documents/wealth-scf-2014-10.pdf">Survey of Consumer Finance</a>, the average net worth outside of housing equity for the middle quintile of households between the ages of 55 and 64 was less than $55,000. This includes all IRAs, 401(k)s and other retirement accounts. This will translate into roughly $3,000 a year in additional retirement income, bringing this middle income household's income up to $22,000 a year.</p><p>Biggs looks at this and says everything is just fine and we should be looking to cut Social Security. Those raising concerns about a retirement crisis do not see $22,000 a year as a middle class income. We are just arguing about adjectives here, there is not much disagreement on the situation.</p><p> </p> Wed, 06 Jan 2016 10:45:00 -0800 Dean Baker, Beat the Press 1048508 at http://www.alternet.org Economy Economy Election 2016 Labor Media News & Politics dean baker Beat the Press retirement security crisis aei Andrew Biggs Speaker In Waiting Paul Ryan Wants To Shut Down The Government Permanently http://www.alternet.org/economy/speaker-waiting-paul-ryan-wants-shut-down-government-permanently <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Ryan has long documented his budget goals.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/shutterstock_paul_ryan_0.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Everyone has seen the news stories about how Representative Paul Ryan, the leading candidate to be the next Speaker of the House, is a budget wonk. That should make everyone feel good, since we would all like to think a person in this position understands the ins and outs of the federal budget. But instead of telling us about how much Ryan knows about the budget (an issue on which reporters actually don't have insight), how about telling us what Ryan says about the budget?</p><p>It is possible to say things about Ryan says, since he has said a lot on this topic and some of it is very clear. In addition to wanting to privatize both Social Security and Medicare, Ryan has indicated that he essentially wants to shut down the federal government in the sense of taking all of the money for the non-military portion of the budget.</p><p>This fact is one that is easy to find if a reporter is willing to do five minutes of research. Ryan directed the Congressional Budget Office to score his budget plans back in 2012. The <a href="http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/121xx/doc12128/04-05-ryan_letter.pdf">score</a> of his plan showed the non-Social Security, non-Medicare portion of the federal budget shrinking to 3.5 percent of GDP by 2050 (page 16).</p><p>This number is roughly equal to current spending on the military. Ryan has indicated that he does not want to see the military budget cut to any substantial degree. That leaves no money for the Food and Drug Administration, the National Institutes of Health, The Justice Department, infrastructure spending or anything else. Following Ryan's plan, in 35 years we would have nothing left over after paying for the military.</p><p>Just to be clear, this was not some offhanded gaffe where Ryan might have misspoke. He supervised the CBO analysis. CBO doesn't write-down numbers in a dark corner and then throw them up on their website to embarrass powerful members of Congress. As the document makes clear, they consulted with Ryan in writing the analysis to make sure that they were accurately capturing his program.</p><p>So what percent of people in this country know that the next Speaker of the House would like to permanently shut down most of the government? What percent even of elite educated policy types even know this fact? My guess is almost no one, we just know he is a policy wonk.</p><p> </p> Wed, 21 Oct 2015 11:30:00 -0700 Dean Baker, Beat the Press 1044479 at http://www.alternet.org Economy Economy Labor The Right Wing paul ryan dean baker Republican war on safety nets Defenders of Wealth Blame Workers For Lousy Recovery, Not Policies Protecting Profits http://www.alternet.org/economy/defenders-wealth-blame-workers-lousy-recovery-not-policies-protecting-profits <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">It&#039;s not a jobless recovery; it&#039;s a recovery with no growth.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/shutterstock_workers.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>That seems to be endless demand for economic policy analysis that finds ways to blame workers for the bad economy rather than the folks in Washington with their hands on the policy wheel.</p><p>The Wall Street financed group <a class="blank" href="http://www.thirdway.org/report/jobless-recoveries" target="_blank">Third Way</a> and the <a class="blank" href="http://blogs.wsj.com/economics/2015/04/08/is-your-job-routine-if-so-its-probably-disappearing/" target="_blank">Wall Street Journal</a> gave us more proof for this proposition yesterday with a new explanation for the "jobless recovery." Their basic story is that economy lost routine relatively low-skilled jobs, but it now needs workers with high-skills for the new jobs that are being created.</p><p>There are two basic problems with this story. The recovery can better be described as "growthless" than "jobless," and there is no evidence of any significant sector of the labor market experiencing a labor shortage.</p><p>Taking these in turn, contrary to what we might believe from the WSJ and Third Wayers, we have created a surprisingly large number of jobs given the economy's weak growth. Back at the start of 2010 CBO had <a class="blank" href="http://www.cbo.gov/sites/default/files/01-26-outlook.pdf" target="_blank">projected growth</a> would average 3.2 percent over the next five years, it actually averaged less than 2.2 percent. So we have seen extraordinarily weak economic growth over this period. On the other hand, job growth has been reasonably healthy, especially in the last year. The explanation is extraordinarily weak productivity growth, which has averaged less than 1.0 percent the last two years. This would seem to be pretty much 180 degrees at odds with the story of a rapidly evolving economy that needs more skilled workers.</p><p>The point about no evidence of a labor shortage is a simple one, where is the wage growth? Even college grads have seen virtually no wage growth in this century. If there are all these potential job openings for skilled workers, then we would expect to see employers bidding up wages to attract the workers they need. We don't.</p><p>In other words, we have a nice story that blames workers for the weak recovery that has essentially no evidence to support it. What's the alternative? We had demand from the housing bubble propelling the economy before the downturn. The bubble has now collapsed. We could fill the demand either with large budget deficits or by pushing down the value of the dollar to reduce the trade deficit, but there is little political support in either party for going these routes.</p><p>Like I always say, the economy is far too simple for economists to understand.</p><p> </p> Thu, 09 Apr 2015 11:53:00 -0700 Dean Baker, Beat the Press 1034598 at http://www.alternet.org Economy Economy Hard Times USA Labor Media The Right Wing dean baker Beat the Press economic justice economic policy Center for Economic and Policy Research How Can We Solve Our Unemployment Crisis? Taking More Vacation http://www.alternet.org/economy/how-can-we-solve-our-unemployment-crisis-taking-more-vacation <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">9 million Americans are currently out of work. But it doesn&#039;t have to be that way. </div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/shutterstock_184701467.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>The economics profession has hit a roadblock in terms of being able to design policies that can help the economy. On the one hand we have many prominent economists, like Paul Krugman and Larry Summers, who say the problem is that we don't have enough demand to get us back to full employment. There is a simple remedy in this story; get the government to spend more money on items like infrastructure, education and clean energy.</p><p>This is a simple story, but politically it is a non-starter. Few Democrats are prepared to push for anything more than nickels and dimes in terms of increased spending, nothing close to magnitudes that would be needed. As far as the Republicans in Congress, it would be easier to convert the Islamic State to Christianity. (We could also boost demand by lowering the dollar and thereby reducing the trade deficit, but economists don't talk about that one.)</p><p>The other side of the professional divide in economics doesn't have much to offer on full employment because they say we are already there. The argument goes that people have dropped out of the labor force because they would rather not work at the wage their skills command in the market. In this story, we may want to find ways to educate or train people so they have more skills, but unemployment is not really a problem in today's economy.</p><p>The notion that seven million people (the drop in population adjusted employment since the start of the recession) just decided they don't feel like working, doesn't pass the laugh test outside of economic departments and corporate boardrooms. This leaves us stuck with a policy prescription -- more stimulus -- that has zero political prospect any time in the foreseeable future.</p><p>There is an alternative. If we can't take steps to increase the demand for labor, we can go the other way and try to reduce the supply. Specifically, we can try to increase the number of people employed by reducing the average number of hours worked.</p><p>That should not sound far-out. This is exactly the route taken by Germany, a country often held up as one of the few economic success stories in the world today.</p><p>Contrary to what is often claimed, Germany has not had booming growth. In fact, its growth since the beginning of the recession has been somewhat slower than growth in the United States.</p><p>Nonetheless, its <a href="http://stats.oecd.org/index.aspx?queryid=21760" target="_hplink">unemployment rate is 5.0 percent</a>. And unlike the United States, its low unemployment rate is not due to people leaving the labor force. The percentage of the population employed in Germany rose by 4.4 percentage points from the pre-recession level. By contrast, it fell by 3.6 percentage points in the United States. If the United States had seen the same increase in the percentage of the population working as Germany, another 20 million people would have jobs right now.</p><p>The secret to Germany's success is in large part that it has been better able to distribute the available work. <a href="http://stats.oecd.org/Index.aspx?DataSetCode=ANHRS" target="_hplink">According to the OECD</a>, the average length of the work year in Germany is 1388 hours. That is 400 hours less than 1788 hours for an average worker in the United States.</p><p>Germany has a variety of policies to spread the work. The simplest one is its work sharing program. The government encourages employers to reduce work hours rather than lay off workers in response to a falloff in demand. The government makes up most of the lost pay for workers who have a reduction in hours.</p><p>This is a straight win-win situation for everyone involved. The government would have paid unemployment benefits to workers who lose their jobs. Instead it is making up a portion of the lost pay for workers putting in fewer hours.</p><p>Germany has long mandated paid family leave, paid sick days, and several weeks of paid vacation every year. All of these policies have the effect of shortening the average hours workers put in on the job each year. By contrast, the policy of having benefits like pensions and health care insurance provided by employers had the effect of lengthening hours, since it means there are high overhead cost per worker.</p><p>Much can be gained by following the German path. Twenty seven states have already followed Germany and included work sharing as part of their state's unemployment compensation system. We just need to educate employers so that more will take advantage of the system.</p><p>Several state and local governments have also taken the lead in mandating paid family leave and/or paid sick days for workers. These policies are needed first and foremost to accommodate the family responsibilities of workers, but they also have the benefit of redistributing the work. More states are almost certain to follow the lead of a list that already includes California and New Jersey on family leave and Connecticut on paid sick leave.</p><p>The best aspect of the sharing the work route is that state and local governments can take the initiative to improve both the work environment and employment prospects for their workers. They don't have to wait for action from Washington. That's a good thing, since those waiting for Washington to take steps to bring the economy back to full employment are likely to be waiting a long time.</p> Wed, 03 Dec 2014 05:33:00 -0800 Dean Baker, Huffington Post 1028046 at http://www.alternet.org Economy Economy Hard Times USA News & Politics World work unemployment germany recession jobs united states redistribution Government Is More Efficient Than The Private Sector In Biggest Social Services, Contrary To Right-Wing Claims http://www.alternet.org/economy/government-more-efficient-private-sector-biggest-social-services-contrary-right-wing-claims <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">This point has to be repeated as conservatives target Social Security and Medicare.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/shutterstock_ss_medicare.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>As much as some folks might hate this fact, the government is sometimes more efficient than the private sector. This is true in the case of providing a retirement income to workers. It is also true when it comes to providing health care insurance. This is one of the main reasons that we have a government-run Social Security and Medicare program.</p><p>This means that because we have a large population of retirees we will have a relatively large government, since it costs a fair bit for tens of millions of retirees to live and get health care. Furthermore, as we get more retirees, we will get a larger government.</p><p>This <a class="blank" href="http://www.washingtonpost.com/opinions/robert-samuelson-our-giant-welfare-state/2014/11/25/28f815bc-74c1-11e4-a755-e32227229e7b_story.html?hpid=z6" target="_blank">troubles</a> Washington Post columnist Robert Samuelson greatly, but not in a way that makes a great deal of sense. Social Security is modestly redistributive. Adjusting for differences in life expectancies, those at the bottom of the wage ladder get a somewhat higher return on what they pay in, while those at the top get a lower return. If we consider this redistribution valuable, we can do it through a separate tax and transfer system and then have the whole Social Security program run through the private sector with the government mandating savings.</p><p>In Robert Samuelson's world, this would be great news because we now have a much smaller government. (The private savings system doesn't count as government.) It also is far more inefficient, since privatized systems cost 20-30 times as much to run as our centralized Social Security system. Also, the expenses of a privatized system are revenue for the financial industry, but no reason to discuss that one. So, in the world of mandated private savings people have no more control over their money than our current system, but somehow we are supposed to be happy because we have a smaller government.</p><p>The other part of the Samuelson story that is worth noting is the idea that we can somehow play with the money paid into Social Security and Medicare and use it for other purposes. That is implicit in his discussion of the idea that we should decide where our money is best spent. Samuelson makes it quite clear that he doesn't want to see retirees get the Social Security and Medicare they paid for. (An<a class="blank" href="http://www.urban.org/publications/412281.html" target="_blank">Urban Institute study</a> shows that workers on average will pay slightly more into Social Security than they get back in benefits. Medicare benefits exceed taxes by a substantial amount, but this is primarily due to the fact that we pay our doctors, drug companies, and other providers twice as much as any other country.)</p><p>As a practical matter, people are willing to pay these taxes because they value the benefits. They are not paying Social Security taxes so folks in Washington can stage wars around the world. We could view the money paid out in interest and principle on government bonds as being available for other purposes also, but most people would recognize the legal and moral obstacles to not repaying bondholders. Similarly, most people would probably see a serious issue with not giving benefits that they had paid for, even if Samuelson apparently does not.</p><p> </p> Tue, 25 Nov 2014 12:45:00 -0800 Dean Baker, Center for Economic and Policy Research 1027662 at http://www.alternet.org Economy Corporate Accountability and WorkPlace Economy The Right Wing role of government government efficiency social security dean baker Americans Clearly Aren't Buying into the Dems' Empty Economic Promises http://www.alternet.org/economy/americans-clearly-arent-buying-dems-empty-economic-promises <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">They do not have a program that offers real improvement in the average person&#039;s life.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/a5af8d07960731e80af73a9a9fc0427646965da0_0.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>It looks like the Democrats will take another shellacking in the congressional elections this week. Part of this is due to factors like the normal falloff in voting in a non-presidential year and the weariness with a president after six years in office, which tends to cause the electorate to support the opposing party.</p><p>However, part of the reason for the shellacking is the Democrats' refusal to address the economic issues that trouble most of the public. As folks know who are either familiar with the data or live in the real world, the economy is still bad for most people. President Obama can rightly say that he inherited a mess from his predecessor, but at some point that does get old. He can also honestly blame the Republicans in Congress who have eagerly proclaimed their opposition to any economic proposal that doesn't have the primary purpose of making the rich even richer.</p><p>While the grim reality can offer legitimate excuses, the Democrats still suffered from the fact that they didn't have a real economic agenda for the bulk of the population. The Republicans at least have a clear agenda. Everyone knows if they get back in control they will give everything left on the table to the richest 1 percent. But what would the Democrats do?</p><p>We do know they would raise the minimum wage. This is good policy to get more money in the pockets of low income workers who can badly use a raise. It is also popular. Polls regularly show that large majorities of people across the political spectrum support increasing the minimum wage.</p><p>Still, a higher minimum wage doesn't offer anything to the bulk of the labor force whose wages will not be affected by plausible increases in the minimum wage. To these people the Democrats offered nothing but empty rhetoric and the public wasn't stupid enough to buy it.</p><p>There is no shortage of policies that the Democrats could be pushing which would help ordinary workers. To start with one that features prominently in the business press, the Democrats could take a strong position behind an expansionary monetary policy from the Federal Reserve Board. This means strong opposition to rate increases until there is clear evidence of inflation.</p><p>The Fed is independent and has to make its own calls, but it would help them make the right calls if they know that there are many in Congress who are prepared to insist the Fed follow its mandate for maintaining high employment. The Fed faces intense pressure from the financial industry to pounce on any hint of inflation.</p><p>The financial industry wants the Fed to raise interest rates to keep unemployment high and prevent workers from gaining bargaining power. It would be a nice switch if Democrats stood could say in public that the Fed should allow workers to get jobs and to gain some bargaining power.</p><p>Another switch would be if the Democrats could talk seriously about the trade deficit. Talk of restoring "competitiveness" is cute, but basically complete nonsense. No one in either party has any proposal that will make more than a marginal difference in the productivity of the U.S. economy any time in the near future.</p><p>If we want to get the trade deficit down then we have to get the value of the dollar down against the currencies of our trading partners. And this is not a question of beating them up for "manipulating" their currency. It is a question of negotiating where we give up things like enforcement of Microsoft's copyrights or Pfizer's patent monopolies in exchange for a lower valued dollar, and therefore more balanced trade.</p><p>Democrats also should be able to speak simple truths about national income accounting instead of being afraid in the way that Republicans are scared to openly endorse the theory of evolution. If we have a large trade deficit, the only ways we can get to potential GDP is either through asset bubbles that pump up investment and consumption or through government deficits. Like evolution, this is true.</p><p>Unfortunately the Democratic Party seems to be controlled by economics denialists. This will prevent it from having a coherent economic message.</p><p>Finally, a Democratic Party that hopes to have an appealing economic message for ordinary workers has to be prepared to attack Wall Street. This is not an abstraction. If the industry was forced to pay the same sort of taxes as other industries, as even the I.M.F. now advocates, and we broke up the big banks, it would go far towards ending the financial sector's drain on the rest of the economy. It would also go far toward reducing inequality.</p><p>In short, it is not surprising that voters are not happy with the Democrats. They do not have a program that offers real improvement in the average person's life. And the message that the other guy is worse apparently is not cutting it this year.</p> Tue, 04 Nov 2014 12:51:00 -0800 Dean Baker, CEPR 1025881 at http://www.alternet.org Economy Economy democrats economy agenda plan vision republicans elections barack obama 300 Million Infected With Ebola Hysteria http://www.alternet.org/300-million-infected-ebola-hysteria <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Many of the politicians who are now the biggest promulgators of Ebola hysteria fever were also the ones pushing the budget cuts over the last decade. </div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/885f083689e4f667a733950e65e2a59b2b98d375.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Thus far, the Ebola virus has infected three people in the United States that we know of, however Ebola hysteria seems to have infected somewhere close to 300 million. There are reports of kids being pulled out of schools and even some school closings. People in many areas are not going to work and others are driving cars rather than taking mass transit because they fear catching Ebola from fellow passengers. There are also reports of people staying away from stores, restaurants, and other public places in order to avoid the deadly plague.</p><p>This would all be comic if there were not real consequences. People not going to work are going to lose needed paychecks. Our kids need to go to school to get an education. And the cost of the hysteria may grow enormously depending on how the government reacts.</p><p>The current fad among politicians is the idea of ban on travel for people from Liberia and other countries where the epidemic is concentrated. This policy is in the “we have to do something” category.</p><p>It is reminiscent of the soldier who reports to his commanding officer that their platoon is surrounded by enemy troops. The commanding officer thinks for a moment, then takes big swing and decks the soldier. When the soldier asks officer why he decked him, the officer says, “I had to do something.”</p><p>Doing something stupid is not always better than doing nothing. And imposing a travel ban is high on the list of stupid things. Apart from what this would do to efforts to contain Ebola in the countries now suffering from the epidemic, there is the more basic problem that it won’t work.</p><p>The travel banners may have enormous faith in the competence of government, but as a practical matter a travel ban will not keep everyone who has been Liberia out of the country. People will come through third countries and simply lie about their travel history. Passport marks will be smudged or removed.</p><p>Travel banners may have great confidence in the ability of our immigration authorities to prevent such trickery, but those of us in the real world know that many people will slip by. And, thanks to the travel banners, these people who may have been exposed to Ebola will be hiding from the health authorities because they have broken the law to get into the country. Now isn’t that a great way to control the virus?</p><p>One obvious way to control Ebola would be to spend some money developing a vaccine. Francis Collins, the Director of the National Institutes of Health thinks that we would have had an effective vaccine by now had it not been for the cuts to the agency over the last decade.</p><p>Needless to say, many of the politicians who are now the biggest promulgators of Ebola hysteria fever were also the ones pushing the budget cuts over the last decade. No doubt they are much happier to spend large amounts of money trying to contain the disease now, and treating victims in the United States, then they would have been spending money a decade ago to develop a vaccine against a disease whose primary victims are Africans.</p><p>If we can get the victims of Ebola hysteria fever to come down for a minute, it is useful to remind them that they face an enormously greater risk of being killed in a car accident than they do from being killed by the Ebola virus. But if that sounds like too much of an abstraction, there is an even simpler point that can be made.</p><p>There have been several outbreaks of Ebola in Sub Saharan Africa over the last three decades. Each of them has been successfully brought under control. This means not only that it is possible to contain the virus and keep it from infecting an ever larger group of people, but that the governments in Sub Saharan Africa were able to muster the resources to accomplish this goal. These are among the poorest countries in the world.</p><p>If Sudan, Zaire (now the Democratic Republic of Congo), and Gabon can bring Ebola under control, surely the United States can do the same. Unfortunately, Ebola Hysteria Fever may be a bit harder to contain.</p> Tue, 21 Oct 2014 07:11:00 -0700 Dean Baker, AlterNet 1024008 at http://www.alternet.org News & Politics Ebola Unemployment Dropped Below 6% -- So What's the Bad News? http://www.alternet.org/economy/unemployment-dropped-below-6-so-whats-bad-news <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Some powerful folks want to see interest rates rise to prevent people from getting jobs and demanding higher wages. </div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/shutterstock_71149642-edited.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>The jobs report on Friday showed the economy created 248,000 jobs in September and the unemployment rate fell below 6.0 percent for the first time since the early days of the recession. This is good news for workers. While we are still far from anything resembling full employment, it is getting easier for people to find jobs.</p><p>If the economy keeps creating jobs at this pace, workers will finally have enough bargaining power to see some real wage gains, thereby getting their share of the benefits of economic growth. But this is also the bad news in the story. There are many powerful people who want to keep these wage gains from happening.</p><p>Immediately after the jobs report was released, James Bullard, the president of the St. Louis Federal Reserve Bank, was <a href="http://www.cnbc.com/id/102056440#." target="_blank">on television</a> insisting that the Fed had to start raising interest rates. Bullard complained that the Fed was behind schedule and needed to slow the economy to prevent inflation.</p><p>There should be no ambiguity about what Bullard was saying. He knows that higher interests will keep people from getting jobs. If the Fed raises interest rates it will discourage people from buying homes and cars. Fewer people will refinance mortgages, which has been a way for tens of millions of people to free up money for other spending over the last few years.</p><p>Higher interest rates will also have some effect in reducing investment. They will also make it more difficult for state and local governments to finance bond issues for building or repairing infrastructure. And they will increase the value of the dollar, which makes our goods less competitive internationally, thereby increasing the trade deficit.</p><p>Bullard wants to see the economy slow because he doesn't want to see more workers get jobs. This is because when more workers get jobs, it will increase their bargaining power and they will be in a position to demand higher wages. This is exactly the inflation that worries Bullard. If workers are getting higher wages then we will see more inflation than in a situation where wages are stagnant. Bullard wants the Fed to slow the economy so that wages remain stagnant.</p><p>If Bullard were just an obscure voice in the wilderness, we could all have a good laugh and get on to real issues. Unfortunately, he is a member of the Fed's 19 person Open Market Committee that decides interest rate policy. Several of the other district bank presidents who sit on this committee have expressed similar views.</p><p>More importantly, there are many prominent economists and business people outside of the Fed who press the same concerns as Bullard. As many reports on the better than expected jobs numbers said, the September jobs report will make the Fed's job more difficult. There will be more pressure on Fed chair Janet Yellen and other inflation doves to start raising interest rates.</p><p>This is where the political realities of the Fed's policymaking process really matter. The Fed has been structured in a way that gives the financial industry, with its obsessive concern about inflation, excessive control over Fed policy. The twelve district bank presidents who comprise the bulk of the open market committee (only five vote at any one time) are appointed through a process that is dominated by the banks in the district. The seven governors (only five seats are currently filled) who make up the rest of the committee are appointed by the president and subject to congressional approval.</p><p>These governors serve 14-year terms; which is supposed to insulate them from political pressure. But the governors also tend to be unduly deferential to the concerns of the financial industry. Traditionally many of the governors have also had backgrounds in finance. For example, Stanley Fischer, who is currently vice-chair, had a stint as a top executive at Citigroup after a long career as an academic economist.</p><p>Thus far Yellen has been a strong voice for staying the course, arguing that the risks of an inflationary spiral are still remote. Her position enjoys strong support in the data. Inflation continues to come in below the Fed's 2.0 percent target. And since this is an average, not a ceiling, the Fed can allow inflation to be above 2.0 percent for some time and still be keeping to its target - which is not itself written in stone.</p><p>But in Washington, reality always takes a back seat to politics. And there is a real danger that the political power of the financial sector will force Yellen to start slowing the economy and stopping job growth long before workers gain any bargaining power. This risk will be greater if the public sits back and leaves Fed policy to the "experts."</p> Wed, 08 Oct 2014 06:54:00 -0700 Dean Baker, CEPR 1022325 at http://www.alternet.org Economy Economy Labor jobs unemployment Janet Yellen interest rates Eric Holder is the Reason Robert Rubin Isn't Behind Bars http://www.alternet.org/corporate-accountability-and-workplace/eric-holder-reason-robert-rubin-isnt-behind-bars <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">As a result, the Wall Streeters who profited most from illegal acts in the bubble years got to keep their haul.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/c13d3dd6fb1bc6bc1a6ea7ed515083c62a049cfb.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>The big news item in Washington last week was Attorney General Eric Holder's decision to resign. Undoubtedly there are positives to Holder's tenure as attorney general, but one really big minus is his decision not to prosecute any of the Wall Street crew whose actions helped to prop up the housing bubble. As a result of this failure, the main culprits walked away incredibly wealthy even as most of the country has yet to recover from the damage they caused.</p><p>Just to be clear, it is not against the law to be foolish and undoubtedly many of the Wall Streeters were foolish. They likely believed that house prices would just keep rising forever. But the fact that they were foolish doesn't mean that they didn't also break the law. It's likely that most of the Enron felons believed in Enron's business model. After all, they held millions of dollars of Enron stock. But they still did break the law to make the company appear profitable when it wasn't.</p><p>In the case of the banks, there are specific actions that were committed that violated the law.</p><p>Mortgage issuers like Countrywide and Ameriquest <a href="http://www.washingtonpost.com/business/economy/bank-of-america-ordered-to-pay-damages-of-127-billion-for-countrywide-fraud/2014/07/30/d62faa0c-1813-11e4-9349-84d4a85be981_story.html" target="_blank">knowingly issued mortgages based on false information</a>. They then sold these mortgages to investment banks like Citigroup and Goldman Sachs who packaged them into mortgage backed securities. These banks <a href="http://www.nytimes.com/2014/07/18/business/what-the-citigroup-settlement-gets-right-and-wrong.html?ref=business&amp;_r=0" target="_blank">knew that many of the mortgages being put into the pools for these securities did not meet their standards</a>, but passed them along anyhow. And, the bond-rating agencies rated these securities as investment grade, giving many the highest possible ratings, even though <a href="http://www.bloomberg.com/news/2013-02-05/s-p-analyst-joked-of-bringing-down-the-house-ahead-of-collapse.html" target="_blank">they knew</a> their quality did not warrant such ratings.</p><p>All three of these actions -- knowingly issuing mortgages based on false information, deliberately packaging fraudulent mortgages into mortgage backed securities, and deliberately inflating the ratings for mortgage backed securities - are serious crimes that potentially involve lengthy prison sentences. Holder opted not to pursue criminal cases against the individuals involved.</p><p>In the last couple of years Holder did bring civil cases against these banks that led to multi-billion settlements. These settlements won big headlines that gave the appearance of being tough on the banks.</p><p>If we look at the issue more closely the rationale for these settlements gets pretty shaky. When Bank of America or J.P. Morgan has to pay out several billion dollars in penalties in 2013 or 2014, the people being hit most immediately are current shareholders and to a lesser extent top management. Since stock turns over frequently, the overlap between the group of people who hold these banks' stock today and the people who benefited from the profits racked up in the bubble years will be limited. This means for the most part the fines are hitting people who did not profit from the wrong doing.</p><p>The same story holds for the top executives. Insofar as these are different people from those in charge in the bubble years (this is mostly the case), they can rightly tell their boards that they should not be held responsible for the wrongdoing of their predecessors. As a result, boards are likely to compensate top management if they fail to hit bonus targets due to the fines. This just means more of a hit to current shareholders. So the people who profited from criminal acts get to keep their money, while Holder can boast about nailing people who had nothing to do with the crime.</p><p>Had Holder treated this as a normal criminal matter he would have looked to build cases from the bottom up. This means finding specific examples of mortgage agents issuing obviously fraudulent mortgages, cases where these mortgages got bundled into securities at investment banks, and then marked as investment grade by the rating agencies.</p><p>The people involved would then be pressed to say whether they are either buffoons or crooks. Most probably would not pass as the former. The next question is why they decided to break the law. When you get people to admit that they were acting on instructions from their bosses, you then ask the bosses whether they want to spend many years in jail or would prefer to explain why they thought it was a good idea to commit fraud. (This is the pattern the Justice Department is pursuing in going after illegal campaign contributions to Washington Mayor Vincent Gray.)</p><p>We can never know this pattern of prosecution would have nailed big fish like Goldman's Lloyd Blankfein or Citigroup's Robert Rubin. We do know that Holder never even tried. As a result the Wall Streeters who profited most from illegal acts in the bubble years got to keep their haul. This is the message that bankers will take away going forward. This virtually guarantees ongoing corruption in finance.</p> Sun, 05 Oct 2014 05:57:00 -0700 Dean Baker, Center for Economic and Policy Research 1021545 at http://www.alternet.org Corporate Accountability and WorkPlace Corporate Accountability and WorkPlace News & Politics eric holder robert rubin wall street banks Conservative Economist Inadvertently Makes the Case for More Government Spending http://www.alternet.org/economy/conservative-economist-inadvertently-makes-case-more-government-spending <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">That&#039;s not what his book intended to say, but it&#039;s the unmistakable conclusion.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/shutterstock_money_worries.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>Gene Steuerle is not a standard right-winger who believes that a dollar in the pocket of a middle class or poor person is a dollar that could be in the pockets of the rich. He is a serious budget analyst who has done important work on tax and budget issues for more than three decades. He sees the deficit as a problem precisely because he sees it as having a negative impact on poorer children in both the present and the future. This is why, apart from the great title, his new book <em>Dead Men Ruling</em>, is worth reading. He sets out the deficit hawk case about as well as anyone can.</p><p>Steuerle's basic point is that the commitments we have made in the budget to mandatory spending programs, most importantly Social Security, Medicare, and Medicaid, plus interest on the debt, will soon take up nearly all of the federal budget. This means that the electorate in twenty or thirty years will have almost no control over how their tax dollars are spent. They will not have the discretion to spend more money on infrastructure, education or other areas they might consider priorities. Their tax dollars will already have been committed to the big three mandatory programs.</p><p>While there is little dispute as to the basic numbers (Steuerle uses projections from the Congressional Budget Office) there are several fundamental issues concerning his framing of the issue. First, the country's main economic problem in the recent past and the foreseeable future is a lack of demand, or "secular stagnation" to use the term that folks like Larry Summers and Paul Krugman prefer.</p><p>If this seems unconnected to Steuerle's budget concerns, then you need to think more closely. The central problem of Dead Men Ruling is overcommitted resources. The country can't pay to educate our kids or maintain our infrastructure because we are spending so much caring for our elderly.</p><p>However, the secular stagnation argument is 180 degrees in the opposite direction. This is an argument that we have millions of people unemployed because we don't have enough demand in the economy. In this story, the best thing we could do is spend more money, ideally in productive areas like educating our kids and improving our infrastructure.</p><p>If the secular stagnation story is right, then our problem is that our deficits have been too small, not too big. The failure to spend more investing in the future was due to political obstacles to deficit spending, either from a misplaced concern about deficits or a positive dislike of government spending in areas that benefit large segments of the population.</p><p>There is obviously a lengthy debate in the economics profession on this issue, but a few points are instructive. Inflation has been stable or drifting downward for virtually all of the last three decades. This is not consistent with an economy that is up against supply constraints.</p><p>Second, countries with much larger debt burdens than the United States have little problem borrowing in international financial markets. Italy, with a debt burden of almost 140 percent of GDP, was able to borrow long-term at <a href="http://markets.ft.com/RESEARCH/Markets/Government-Bond-Spreads" target="_hplink">less than a 2.8 percent interest rate</a> in the summer of 2014. Japan, with a debt burden of more than 240 percent of GDP, was able to borrow at less than a 0.6 percent interest rate. This suggests that the United States, with a debt to GDP ratio of less than 80 percent, is quite far from reaching any borrowing limits.</p><p>Third, as a practical matter the countries that have reduced their deficit the most since 2010 <a href="http://www.cepr.net/index.php/blogs/cepr-blog/austerity-and-the-employment-rate" target="_hplink">have seen the worst employment performance</a>. This implies that if the United States had spent large amounts of money investing in the future, it would have paid both short-term employment dividends and long-term growth dividends.</p><p>If the U.S. economy has been faced with a persistent shortfall in demand then we really are not constrained in our spending. That could change at some point in the future, but there is no obvious reason that it should. Furthermore, if there is some substantial spur to growth (e.g. a sharp reduction in the trade deficit), it will lead to a boost in tax revenue and reduction in payments for many transfer programs, directly improving the budget picture.</p><p>That should not sound far-fetched to anyone who remembers the last time ran budget surpluses in the late 1990s and early 2000s. In 1996, the Congressional Budget Office projected a deficit of 2.5 percent of GDP for 2000. Instead we had a surplus of roughly the same amount, meaning a shift of 5 percentage points of GDP (at $850 billion in the 2014 economy). This shift was not brought about by any tax increases or spending cuts, the Clinton tax hike and Clinton and Gingrich spending cuts were already incorporated into the 1996 projections.</p><p>The reason for the large shift from projected deficits to actual surpluses was more rapid growth and a sharp reduction in the unemployment rate. CBO had projected a 6.0 percent unemployment rate for 2000; in fact the rate was 4.0 percent. In short, CBO can be taken by surprise on these things. (It was taken by surprise in the opposite direction with the collapse of the housing bubble in 2008.)</p><p>Beyond the macroeconomic questions, there also are some fundamental issues about what constitute commitments made by dead men. Steurele restricts his list to the main entitlement programs, however the government makes many other commitments that can be comparably binding. For example, the decision to go to war in Iraq committed the government to hundreds of billions of dollars in veterans benefits, including large payments to veterans who were permanently disabled as a result of the war. It also arguably locked in large amounts of additional military spending as politicians find it difficult to just walk away from the turmoil created by a war they had supported. Tough on crime laws imply the same sort of future spending commitment for incarceration and the criminal justice system more generally. If these costs are included then our kids might be even more constrained than Steurele indicates.</p><p>Fortunately there are some aspects to the situation that point in the opposite direction. First, it is not clear that the public views taxes for all purposes as interchangeable. Specifically, there is reason to believe that the public views taxes that pay for Social Security as being qualitatively different than other taxes.</p><p>This is not just a legalistic argument about the definition of the Social Security trust fund. Social Security was set up to be a distinct program and there is evidence that the public sees it this way. The National Academy for Social Insurance did a <a href="http://www.nasi.org/research/2013/report-strengthening-social-security-what-do-americans-want" target="_hplink">poll</a> asking respondents to choose between various proposed cuts to the program as compared to raising the payroll tax. A substantial majority preferred raising the payroll tax to any of the proposed cuts. It is unlikely that a majority would have supported higher taxes more generally.</p><p>Of course taxes for social insurance programs have been raised a great deal over the last five decades, going from 3.0 percent of GDP in the early 1960s, to roughly 6.0 percent of GDP in the last decade. While this increase has been largely offset by declines in corporate income taxes and excise taxes, it is unlikely that reductions in these other taxes made voters more willing to tolerate higher payroll taxes. (This point applies even if we allow that most of these taxes would be passed on to workers in lower real wages. It is implausible that workers distinguish between an increase in real wages due to productivity growth and an increase due to a cut in corporate income taxes. If the former does not make them open to higher taxes then it is unlikely the latter would either.)</p><p>To make this point another way, if Social Security had been privatized, then the money committed to the program would not be included at all in the budget. This money would instead be going to private accounts. This would mean a larger percentage of the budget would be under the discretion of current voters. That translates into a big improvement in the Steurele-Roper Fiscal Democracy Index, which measures the share of the federal government not committed to the big three programs, even though current voters would not control any larger share of the total economy's output.</p><p>If voters actually perceive their payments to Social Security as distinct from their other payments to the government, then this is not really money that is available for other purposes. There can always be questions of timing and minor reallocations, but we can't think that we will support any substantial portion of the general budget from money designated as Social Security contributions.</p><p>This brings us to Medicare-Medicaid side of the big three. The rising costs projected for these programs are in part driven by aging, but also by projections of excessive growth in health care costs. While Steurele puts the payments for seniors front and center in his analysis, arguably the payments to health care providers are what really deserves center stage on the national agenda.</p><p>The United States pays more than twice as much per person for its health care as the average for other wealthy countries with nothing to show for it in terms of outcomes. We do not get better care than people in Germany, Canada, or France, we just pay much more for the care we get. The main reason is that our providers - doctors, drug companies, medical equipment companies - get paid twice as much as providers in these other countries.</p><p>Rather than looking to take away benefits from seniors, it might make more sense to bring payments to providers in line with the payments in the rest of the world. (My preferred route is increased trade. If Medicare beneficiaries had the opportunity to <a href="http://www.cepr.net/index.php?option=com_content&amp;view=article&amp;id=2492" target="_hplink">buy into more efficient systems elsewhere</a>, splitting the gains with the government, it would make more people aware of how inefficient our health care system is.) This is of course an extremely difficult battle. All of these groups have enormous political power which they will use to combat any effort to cut their incomes. Of course retirees and future retirees also have substantial political power, as Steurele knows quite well.</p><p>It seems the real issue is which group you choose to fight. The projected growth in health care programs will lead to serious budget problems as well as difficulties in paying for health care in the private sector. We can either cut back the public sector programs that disproportionately benefit seniors or bring our health care costs in line with costs in the rest of the world. The latter route would offer benefits not only for the budget but for the economy as a whole as the albatross of a broken health care sector would no longer be a drag on economic growth.</p> Wed, 23 Jul 2014 10:43:00 -0700 Dean Baker, Huffington Post 1012503 at http://www.alternet.org Economy Books Economy Hard Times USA News & Politics dean baker Gene Steuerle Federal Stimulus Package social security medicare medicaid federal spending Surge of Attention to Crusading Economist Piketty's New Book Takes Us to the Big Question of How to Reduce Inequality http://www.alternet.org/news-amp-politics/economic-policy-post-piketty-world <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Finance is under-taxed, making a global wealth tax more timely than ever.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/tpiketty1.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>Thomas Piketty's new book, “<a href="http://www.amazon.com/gp/product/067443000X/ref=as_li_ss_tl?ie=UTF8&amp;camp=1789&amp;creative=390957&amp;creativeASIN=067443000X&amp;linkCode=as2&amp;tag=thesmirkingchimp">Capital for the 21st Century</a>,” has done a remarkable job of focusing public attention on the growth of inequality in the last three decades and the risk that it will grow further in the decades ahead. Piketty's basic point on this issue is almost too simple for economists to understand: If the rate of return on wealth (r) is greater than the rate of growth (g), then wealth is likely to become ever more concentrated.</p><p>This raises the obvious question of what can be done to offset this tendency toward rising inequality? Piketty's answer is that we need a global wealth tax (GWT) to redistribute from the rich to everyone else. That is a reasonable solution if we're just working out the arithmetic in this story, but don't expect many politicians to be running on the GWT platform any time soon.</p><p>If we want to counter the rise in inequality that we have seen in recent decades we are going to have to find other mechanisms for reversing this upward redistribution. Specifically, we will have to look to ways to reduce the rents earned by the wealthy. These rents stem from government interventions in the economy that have the effect of redistributing income upward. In Piketty's terminology cutting back these rents means reducing r, the rate of return on wealth.</p><p>Fortunately, we have a <a href="http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism">full bag of policy tools</a> to accomplish precisely this task. The best place to start is the financial industry, primarily since this sector is so obviously a ward of the state and in many ways a drain on the productive economy.</p><p>A new <a href="https://www.imf.org/external/pubs/ft/survey/so/2014/pol033114a.htm">IMF analysis</a> found the value of the implicit government insurance provided to too big to fail banks was $50 billion a year in the United States and $300 billion a year in the euro zone. The euro zone figure is more than 20 percent of after-tax corporate profits in the area. Much of this subsidy ends up as corporate profits or income to top banking executives.</p><p>In addition to this subsidy we also have the fact that finance is hugely under-taxed, a view shared by the IMF. It<a href="https://www.imf.org/external/.../062710b.pd.">recommends</a> a modest value-added tax of 0.2 percent of GDP (at $35 billion a year). We could also do a more robust financial transactions tax like Japan had in place in its boom years which raised more than 1.0 percent of GDP ($170 billion a year).</p><p>In this vein, serious progressives should be trying to stop plans to privatize Fannie and Freddie and replace them with a <a href="http://www.banking.senate.gov/public/index.cfm?FuseAction=Newsroom.PressReleases&amp;ContentRecord_id=f8f64d97-d732-3aa9-e966-6040d7dbf169">government subsidized private system</a>. Undoubtedly we will see many Washington types praising Piketty as they watch Congress pass this giant new handout to the one percent.</p><p>The pharmaceutical industry also benefits from enormous rents through government granted patent monopolies. We spend more than $380 billion (2.2 percent of GDP) a year on drugs. We would spend 10 to 20 percent of this amount in a free market. We would not only have cheaper drugs, but likely better medicine if we funded research upfront instead of through patent monopolies since it would eliminate incentives to lie about research findings and conceal them from other researchers.</p><p>There are also substantial rents resulting from monopoly power in major sectors like telecommunications and air travel. We also give away public resources in areas like broadcast frequencies and airport landing slots. And we don't charge the fossil fuel industry for destroying the environment. A carbon tax that roughly compensated for the damages could raise between $80 to $170 billion a year (0.5 to 1.0 percent of GDP).</p><p>This short list gives us plenty of places where we could pursue policies that would lower profits to the benefit of the vast majority of the population. And, these are all ways in which a lower return to capital should be associated with increased economic efficiency. This means that, unlike pure redistributionist measures like taxing the rich, we would have a larger pie that would even allow for some buying off of the losers.</p><p>These are the sorts of measures that economists usually try to seek out when the pain is inflicted on ordinary workers. Economists are big fans of trade agreements that arguably boost growth but lead to a loss of jobs and wages for manufacturing workers. For some reason economists don't have the same interest in economic efficiency when the losers are the rich, but that is no reason the rest of us should not use good economic reasoning in designing an agenda.</p><p>In addition to the rent reducing measures listed above, there are redistributionist measures that we should support, such as higher minimum wages, mandated sick days and family leave, and more balanced labor laws that again allow workers the right to organize. Such measures should help to raise wages at the expense of a lower rate of return to wealth.</p><p>If this post-Piketty agenda sounds a great deal like the pre-Piketty agenda, it's because the book probably did not change the way most progressives think about the world. The basic story is that income and wealth are being redistributed upward.</p><p>Piketty has produced an enormous amount of data to support what we already pretty much knew. This is very helpful. However the real question is how are we going to reverse this upward redistribution. For better or worse, Piketty pretty much leaves us back with our usual bag of tricks. We just might feel a greater urgency to use them.</p> Tue, 22 Apr 2014 11:09:00 -0700 Dean Baker, Center for Economic and Policy Research 984426 at http://www.alternet.org News & Politics Economy News & Politics Thomas Piketty Capital for the 21st Century imf global wealth tax MSNBC's New Young GOP Voice, Abby Huntsman, Takes Old False Generational Warfare Line on Social Security http://www.alternet.org/media/msnbcs-new-young-gop-voice-abby-huntsman-takes-old-false-generational-warfare-line-social <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">A stunning error-riddled tirade from presidential candidate Jon Huntsman&#039;s daughter. </div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/shutterstock_dont_listen.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>It's always entertaining when people who obviously have no clue about the basic facts on Social Security take to educating people on Social Security. Of course it's unfortunate when such people actually get taken seriously. In the hope of reducing this risk, BTP takes this opportunity to address Abby Huntsman's <a class="blank" href="http://www.msnbc.com/the-cycle/watch/the-millennial-generation-faces-big-problems-194378307939" target="_blank">warning to millennials</a> about the risks posed to them by Social Security.</p><p>Ms. Huntsman (the daughter of unsuccessful presidential candidate Jon Huntsman) tells her audience that the problem is that people are living much longer so that we are seeing much higher ratios of retirees to workers than when the program was first established in 1937. There are two big problems with the basics of Huntsman's story. First, most of the gain in life expectancy that she points to in the segment is the result of reduced infant mortality, not people living longer. For example, the Social Security trustees report <a class="blank" href="http://www.ssa.gov/oact/tr/2013/V_A_demo.html#255003" target="_blank">shows life expectancy at birth</a> increased by more than 15 years from 1940 to 2012, however life expectancy at age 65 has increased by just 6.5 years. It's great to see lower infant mortality rates, but this doesn't affect the finances of Social Security, it is the increase in life expectancy at age 65 that matters.</p><p>However the  bigger problem with Huntsman's diatribe is that this increase in life expectancy was expected at the time the program was created. As a result, a number of increases in the tax rate were put into place in the next five decades. The <a class="blank" href="http://www.ssa.gov/oact/tr/2013/V_C_prog.html#284997" target="_blank">initial tax rate was just 2.0 percent of wages</a>on both the worker and the employer. Since 1990 it has been 6.2 percent of wages for both employer and employee. (The taxable wage base was also increased substantially.) These increases were put in place to deal with the costs associated with a rise in the ratio of retirees to workers. The age for receiving full benefits has also been increased from 65 to 66 at present, and will rise to 67 for people reaching age 62 after 2022. It is flat-out wrong to claim either that the increase in life expectancy caught anyone by surprise or that no changes were made to deal with longer life expectancies.</p><p>The other part of Huntsman story that is even more misleading is the idea that the finances of the program poses some insoluble problem or that the program will impose an unbearable burden on millenials. In fact, average wages are projected to grow substantially in coming decades. If most millenials get their share of wage growth, then they will enjoy far higher standards of living than do workers today, even if their taxes are increased to cover the cost of a larger number of retirees.</p><p>The figure below shows the Social Security trustess projections for wages over the next seven decades. It also shows after Social Security tax wages under the assumption that taxes are increased at the rate 0.05 percentage points on both workers and employers each year from 2020 to 2050. This increase will be enough to leave the program fully funded well into the next century even assuming no other changes are ever made.</p><p><img alt="social security wages 14144 image001" src="http://www.cepr.net/images/stories/blogs/social_security_wages_14144_image001.png" style="display: block; margin-left: auto; margin-right: auto;" width="460" /></p><p>                         Source: <a class="blank" href="http://www.ssa.gov/oact/tr/2013/V_B_econ.html#282052" target="_blank">Social Security Trustees Report</a> and author's calculations.</p><p>Of course there is a big problem wiith this story. In the last three decades most workers have not shared in the growth of the economy. Most of the gains have gone to profits or highly paid workers like Wall Street traders, CEOs, and some celebrity types like Ms. Huntsman. If this pattern continues then millenials may not see rising living standards in the decades ahead. However, the risk to living standards posed by the continuing upward redistribution swamps any risks posed by a larger population of retirees. It is understandable that those who benefit from the upward redististribution would prefer to have public attention focused on Social Security, but this focus is not based in economic reality.</p> Fri, 14 Mar 2014 13:01:00 -0700 Dean Baker, Center for Economic and Policy Research 970482 at http://www.alternet.org Media Economy Media News & Politics The Right Wing dean baker social security Social Security generational warfare Abby Huntsman msnbc media criticism NPR Lets Pew Polling Expert Paul Taylor Promote Generational Conflict On Social Safety Nets http://www.alternet.org/media/npr-lets-pew-polling-expert-paul-taylor-promote-generational-conflict-social-safety-nets <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">More right-wing bias from the supposedly balanced public airwaves.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/shutterstock_garbage_can.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>In the last three decades the rich have gotten the bulk of the benefits of economic growth, as those at the middle and bottom of the wage distribution have seen little improvement in living standards. This naturally leads many people to want to reverse the policies that have led to this upward redistribution, such as high unemployment, a trade policy that protects high end workers, while subjecting the middle and bottom to international competition, government subsidies to too big to fail banks, an ever more intrusive patent policy, an anti-trust policy that greenlights monopolies like Microsoft, and many others that could be added to this list.</p><p>Of course the winners of the last three decades don't want the public to consider policies that might reverse this upward redistribution, so instead they do things like try to promote generational conflict, claiming that the troubles of younger workers are somehow attributable to their parents Social Security and Medicare. Wall Street billionaire Peter Peterson is a leader in such efforts, having funded numerous groups for this purpose.</p><p>NPR did its part in the promotional of generational war, <a class="blank" href="http://www.npr.org/2014/03/04/285581006/millennials-to-bear-burden-of-boomer-s-social-safety-net" target="_blank">interviewing Paul Taylor</a>, the executive vice president at Pew Research Center about his new book. Taylor repeatedly complained that younger generations don't seem angry about their parents' Social Security and Medicare. He told his interviewer:</p><p>"Well, what's so fascinating is there isn't any tension at the moment. You have a generation coming in that isn't wagging its finger with blame at mom or grandma, in fact, they're living with mom and grandma."</p><p>Later he adds:</p><p>"I leave this book thinking we have very serious demographically driven challenges, that we have a political system that at the moment isn't stepping up to the plate, but we have a population that isn't spoiling for a fight over these issues."</p><p>In addition to expressing his disappointment that the young don't share his antagonism to older people over their Social Security and Medicare, Taylor also seriously misrepresents some key points about these programs and the burdens they face. He tells listeners:</p><p>"Things are out of balance. Our Social Security and Medicare systems, which, in the public's mind, have done brilliantly in doing what they set out to do, they were based on the demographics of the 20th century. You had, literally, at the beginning, 150 workers per retiree, by the time all the baby boomers move into taking those programs, we'll only have two workers per retiree.</p><p>"The math of those programs does not work. Everybody who looks at the demographics knows that those systems are going broke with 15 or 20 years and the longer you wait, the more the burden of the solution is going to fall on the millennials."</p><p>Actually, the demographics have long been known to the people who designed these programs and were predicted almost perfectly many decades ago. Furthermore, the projected shortfalls in Social Security and Medicare can be met with tax increases on the millennials that are considerably smaller than the tax increases faced by the baby boomers.</p><p>The key issue is whether we continue to see the upward redistribution of the last three decades or whether the gains from growth are broadly shared. The Social Security Trustees<a class="blank" href="http://www.ssa.gov/oact/tr/2013/V_B_econ.html#282052" target="_blank">project</a>that average compensation will increase by more than 50 percent over the next three decades. If the wages of typical worker increase in step with the average then it would be difficult to see the generational injustice if their payroll taxes increased by two to three percentage points, especially since this will be needed in order to support their own longer retirements.</p><p>It is striking that NPR is willing to focus so much more attention on the threat to the living standards of millennials presented by a 2-3 percentage point increase in payroll taxes than the policies that could lead to much or all of the benefits of productivity growth over the next three decades going to those at the top, as has been the case for the last three decades.</p><div class="ultimatesbplugin_bottom"> </div> Tue, 04 Mar 2014 18:41:00 -0800 Dean Baker, Center for Economic and Policy Research 966067 at http://www.alternet.org Media Labor Media News & Politics pew Paul Taylor media criticism Washington Post Absurdly Credits GOP Not Progressives For Obama Turnaround On Social Security Cuts http://www.alternet.org/media/washington-post-absurdly-credits-gop-not-progressives-obama-turnaround-social-security-cuts <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">The Capital&#039;s paper of record despises progressive populism.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/shutterstock_truth_v._lies_0.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>The Washinton Post gets infuriated at the thought that anyone who doesn't have lots of money could affect political outcomes in the United States. Hence it was quick to run a <a class="blank" href="http://www.washingtonpost.com/blogs/wonkblog/wp/2014/02/21/liberals-didnt-kill-obamas-social-security-cuts-republicans-did/?tid=up_next" target="_blank">piece</a> with the headline: "Liberals didn't kill Obama's Social Security cuts: Republicans did."</p><p>The reference is to President Obama's decision to remove the proposal to reduce the annual cost of living adjustment to Social Security benefits. The proposal would have reduced benefits by roughly 0.3 percentage points annually against current law. This cut is cumulative so that after ten years it implies a cut of roughly 3.0 percent, after twenty years, 6.0 percent, and for someone who lives to collect benefits for thirty years the cut would be 9.0 percent. (Obama's proposal includes some offsets, so the actual cuts would be somewhat less, especially for the oldest elderly.)</p><p>The point of the piece is that Obama would have gone with this proposal, and probably still would today, if the Republicans were prepared to make some concessions on revenue. This is the logic of saying that the Republicans killed the plan, not liberals.</p><p>However this is just half the picture. The Republicans did not force President Obama to take the proposal out of his budget, liberals did. Because of a massive outpouring of opposition from across the country, Democratic members of Congress, who have to run for re-election, urged President Obama not to include the proposal in his 2015 budget.</p><p>Otherwise, this might have been a case where you just leave the Christmas lights out all year. Why bother to take them down? It's of course painful at the Post to acknowledge that progressive groups without big bucks can make a difference in national politics, but it does happen from time to time. </p><p>The piece also tells readers: "Many of his advisers believed that chained CPI [the cut to the annual Social Security cost-of-living adjustment], with protections for poor seniors, was a good policy that used a more accurate measure of inflation."</p><p>Actually, the Post doesn't know what President Obama's advisers believed. The Post knows what they said. President Obama's advisers hold their positions because they are thought to be good at spinning reporters. Part of that spin means telling reporters that they really "believe" that President Obama's positions are the best possible policy.</p><p>It is possible that President Obama's advisers really do believe that seniors living on $1,300 a month (the average Social Security benefit, which is more than 90 percent of the income for almost 40 percent of retirees) have too much money, but they would say this to Washington Post reporters regardless of what they actually believed. That is a job requirement.</p><p>If a Post reporter claims that they know an Obama official well enough to ascertain their true beliefs then they are probably too close to that person to be able to report on them objectively.</p><p> </p> Sat, 22 Feb 2014 08:08:00 -0800 Dean Baker, Center for Economic and Policy Research 961732 at http://www.alternet.org Media Activism Media News & Politics The Right Wing media criticism media bias progressives social security cuts How the Super Rich Get Wealthy By Rigging the System to Their Benefit http://www.alternet.org/economy/how-super-rich-get-wealthy-rigging-system-their-benefit <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">We don&#039;t have to structure the economy to feed the rich and starve the rest. </div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/shutterstock_68930014.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Greg Mankiw is out there<a class="blank" href="http://www.nytimes.com/2014/02/16/business/yes-the-wealthy-can-be-deserving.html?ref=business" target="_blank">defending the 1 percent</a> again. He put forward the argument that the big bucks are simply their just desserts; the rewards for exceptional skill and hard work.</p><p>His opening act is Robert Downey Jr. who apparently got $50 million for his starring role in a single movie. This is a great place to start. There's no doubt that Robert Downey is an extremely talented actor, but of course there have been many actors over the years who have put in great performances for much less money. How is that Downey could earn so much more than a great actor from the 50s, 60s, or 70s?</p><p>We could give a simple answer and say something like globalization and technology, but that would be at best half right. Certainly many more people will be able to see the films that Downey acts in than would have had the opportunity to see the stars from a half century ago, but that doesn't mean that Downey would get money from the broader exposure. In fact, a big part of the reason that Downey can collect huge paychecks is the extension and strengthening of copyrights. The United States has lengthened the period of copyrights from 28 years, with an option for a 28 year renewal, to 75 years in the 1976, and then to 95 years in 1998. </p><p>It also has stepped up copyright enforcement, imposing stiff fines on people who use the Internet to make unauthorized copies of copyrighted material. This is important, since the technology itself would let everyone quickly see Robert Downey Jr.'s new movies at no cost. It is only because of government intervention in the form of copyright monopolies that he is able to collect $50 million.</p><p>It is also worth noting that this intervention also has an indirect effect. If there was a large amount of high quality and recent material that everyone could obtain for free on the web (and show in theaters if they like), then no one would be willing to pay big bucks to see Downey's latest feature. So is Downey worth his $50 million, perhaps given the structure we have, but we could easily have a different structure which could quite possibly be a more efficient way to support and distribute creative work. (<a href="http://www.cepr.net/index.php/publications/reports/the-artistic-freedom-voucher-internet-age-alternative-to-copyrights">Here</a>'s my scheme.) FWIW, a similar story would apply to the writers and athletes in Mankiw's 1 percent defense.</p><p>Then we get to the CEOs who Mankiw tells us get high pay because of what they contribute to their companies and the economy. If this is the case, how do we explain CEO's of companies like Lehman, Bear Stearns, and AIG walking away with hundreds of millions of dollars even though they drove their firms into bankruptcy? When the CEO of Exxon-Mobil gets hundreds of millions because soaring worldwide oil prices sent Exxon's profits through the roof, do we really think the pay is a function of hard work? How do we explain the fact that CEOs of incredibly successful companies in Europe, Japan, and South Korea make on average around a tenth as much as our crew does?</p><p>That one doesn't seem to fit the just desserts story. The more likely explanation is the<a class="blank" href="http://data.huffingtonpost.com/paypals" target="_blank">Pay Pals</a> story, where the company's board of directors are paid off by CEOs to look the other way as they pilfer the company.  (See CEPR's new<a href="http://www.cepr.net/index.php/director-watch">Director Watch</a>, which will feature your favorite directors in the months and years ahead.) Unlike the case in Europe, Japan, and South Korea, there is no force to effectively limit the CEO's pay. Needless to say, the directors never ask if they could get a comparably skilled CEO for less money from Germany, Japan, or China.</p><p>And then there is the financial sector where Mankiw tells us that the extraordinary pay is compensation for the volatility of paychecks. That's interesting, except the vast majority of comparably talented and hardworking people would be happy to get the pay the finance folks get in the bad years. Much of the big money on Wall Street stems from highly leveraged bets that beat the market by seconds or even milliseconds. This provides as much value to the economy as insider trading, which it in fact it resembles closely.</p><p>It would be interesting to see what would happen to the big fortunes in the financial sector if it had to pay a small transaction fee, effectively subjecting it to the <a href="https://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=1&amp;cad=rja&amp;ved=0CCcQFjAA&amp;url=https%3A%2F%2Fwww.imf.org%2Fexternal%2Fnp%2Fg20%2Fpdf%2F062710b.pdf&amp;ei=_s3_UozeCqOB1AHix4GgCw&amp;usg=AFQjCNG7pA6iKxrfFAEm_Ao-l6cXSrzKMA&amp;sig2=XPRmn-zIZEG0438q9ABESQ&amp;bvm=bv.61535280,d.dmQ">same sort of sales tax</a> that is paid in almost every other sector of the economy. It would also be interesting to see what would happen to the private equity folks if they lost the opportunity for the tax gaming that is their bread and butter.</p><p>I could go on (read my <a href="http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism">non-copyright protected book</a> on the topic), but the point should be clear. If the 1 percent are able to extract vast sums from the economy it is because we have structured the economy for this purpose. It could easily be structured differently, but the 1 percent and its defenders aren't interested in changing things. And the 1 percent and its defenders have a great deal of influence on the direction of economic policy.</p><p> </p> Thu, 20 Feb 2014 12:06:00 -0800 Dean Baker, Center for Economic and Policy Research 961048 at http://www.alternet.org Economy Economy aig bankruptcy bear stearns business ceo China Director Watch downey california Economy of the United States europe exxon exxonmobil germany Greg Mankiw Japan lehman mobil N. Gregory Mankiw Quotation ROBERT DOWNEY JR. Robert Downey jr. south korea USD united states actor comparably skilled CEO finance folks great actor oil prices Mainstream Media Wrong On Obamacare: CBO Says It Will Let People Work Less And Raise Others' Wages http://www.alternet.org/economy/mainstream-media-repeats-incorrect-gop-line-obamacare-and-jobs <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Reporters confuse people voluntarily leaving work verses being fired.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/shutterstock_stop_working.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>Apparently a lot of media folks have made such a habit of repeating Republican talking points that they can't see what is right in front of their eyes. The Republicans are touting the fact that the Congressional Budget Office (CBO) expects the Affordable Care Act (ACA) to reduce the number of people working.</p><p>Guess what? This was one of the motivations for the ACA. It is a feature, not a bug. There are a lot of people who would prefer not to work and would not work if they had some other way to get health care insurance. Imagine a 62 year-old with diabetes and other health conditions. No insurer will touch this person. If they can get insurance at all they are looking at bill that will certainly run well over $10k a year. If this person has a job that provides insurance they will keep it until they qualify for Medicare no matter how much of a struggle it is to go to work each day.</p><p>Now with the ACA this person will be able to buy insurance at the same price as anyone else in the age 55-64 age group. If they can get by on their Social Security and prior savings then they may well decide to retire early. They may also qualify for a subsidy in the exchanges. Is this an awful story? You be the judge.</p><p>The other likely scenario is the case of a mother with a newly born child. She may want to spend some time at home with her kid, but may have no other way to pay for her health insurance if she leaves her job. The ACA will give her an opportunity to get lower cost insurance (possibly with a subsidy). Again, is a mother taking some off to be with a new born kid a horror story?</p><p>Finally, we should be very clear about what <a class="blank" href="http://www.cbo.gov/publication/45010" target="_blank">CBO said</a> on wages since there really is no ambiguity here. It said:</p><p>"According to CBO’s more detailed analysis, the 1 percent reduction in aggregate compensation that will occur as a result of the ACA corresponds to a reduction of about 1.5 percent to 2.0 percent in hours worked. (p 127)"</p><p>If hours fall by 1.5 to 2.0 percent, but compensation falls by 1.0 percent, then compensation per hour rises by 0.5-1.0 percent due to the ACA. If this is bad news for workers then someone must have been enjoying the new found freedoms in Colorado or Washington State too much.</p> Wed, 05 Feb 2014 12:51:00 -0800 Dean Baker, Center for Economic and Policy Research 955191 at http://www.alternet.org Economy Economy News & Politics The Right Wing Congressional Budget Office affordable care act obamacare jobs employment Republican talking points Silicon Valley Billionaires Believe in the Free Market, As Long as They Benefit http://www.alternet.org/corporate-accountability-and-workplace/silicon-valley-billionaires-believe-free-market-long-they <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Google, Apple and other tech firms likely colluded to keep their workers&#039; wages down. So much for that libertarian worldview.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/paloalto.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p><em>This article originally appeared at <a href="http://www.theguardian.com/commentisfree/2014/feb/03/google-apple-silicon-valley-free-market-joke" target="_blank">The Guardian</a>, and is reprinted here with their permission.</em></p><p>Last week, Mark Ames published <a href="http://pando.com/2014/01/23/the-techtopus-how-silicon-valleys-most-celebrated-ceos-conspired-to-drive-down-100000-tech-engineers-wages/" style="none" target="_blank">an article</a> that should forever destroy any connection between the Silicon Valley tech billionaires and their supposed libertarian worldviews. The article reports on a court case that alleges that <a href="http://www.theguardian.com/technology/apple" style="none" target="_blank" title="More from the Guardian on Apple">Apple</a>, Google, and other Silicon Valley powerhouses actively conspired to keep their workers' wages down. According to documents filed in the case, these companies agreed not to compete for each others' workers dating at least as far back as 2005. Workers in the industry have filed a class action suit that could lead to the payment of billions of dollars in lost wages.</p><p>This case is striking on many levels, the most obvious being the effective theft of large amounts of money by some of the richest people on the planet from their employees. This is pernicious, but not altogether surprising. After all, the boss stealing from the workers is as dog bites man as it gets. Few would be surprised that rich people were willing to break the law to get even richer.</p><p>The real news here is how the Silicon Valley barons allegedly broke the law. The charge is that they actively colluded to stifle market forces. They collectively acted to prevent their workers from receiving the market-clearing wage. This means not only that they broke the law, and that they acted to undermine the market, but that they really don't think about the market the way libertarians claim to think about the market.</p><p>The classic libertarian view of the market is that we have a huge number of people in the market actively competing to buy and sell goods and services. They acknowledge the obvious — some actors are much bigger than others — but there is so much competition that no individual or company can really hope to have much impact on market outcomes.</p><p>This point is central to their argument that the government should not interfere with corporate practices. For example, if we think our local cable company is charging too much for cable access, our libertarian friends will insist that the phone company, satellite television or other competitors will step in to keep prices in line. They would tell the same story if the issue were regulating the airlines, banks, health insurance, or any other sector where there is reason to believe that competition might be limited.</p><p>They would tell the same story on the labor side. If we are concerned that workers are getting low wages, then the answer is to improve their skills through education and training, rather than raise the minimum wage. If workers were worth more than the minimum wage, then the market would already be paying them more than the minimum wage.</p><p>They tell the same story when it comes to requiring family leave, sick days, or other benefits. Libertarians would say that if workers value these benefits, they would negotiate for them and be willing to trade off wages. There is no reason for the government to get involved.</p><p>This story about the wonders of the free market is simple in its appeal and it has the great implication that nothing should be done to keep the rich from getting ever richer. However, the Silicon Valley non-compete agreements show that this is not how the tech billionaires believe the market really works. This is just a story they peddle to children and gullible reporters.</p><p>If they really believed the market had a deep sea of competitors in which no individual actor could count for much, then their non-compete agreements would serve no purpose. If Google, Apple, Intel and the other biggies agreed not to hire each others' workers, it really wouldn't affect their pay since there would always be new upstarts ready to jump in and hire away underpaid engineers.</p><p>The fact the Silicon Valley honchos took the time to negotiate and presumably enforce these non-compete agreements was because they did not think that there were enough competitors to hire away their workers. They believed that they had enough weight on the buy-side of the market for software engineers that if they agreed not to compete for workers, they could keep their wages down.</p><p>It shouldn't be surprising that the Silicon Valley billionaires really aren't libertarians. After all, much of their fortunes rest on patents and copyrights, both of which are government-granted monopolies: the opposite of a free market.</p><p>But for some reason, seeing the tech whiz-kids forming a cartel to keep down their workers' wages seems an even more direct violation of any belief in libertarian principles. This is the same sort of cartel behavior that we associate with the cigar-chomping <a href="http://www.nytimes.com/2011/07/17/books/review/book-review-railroaded-by-richard-white.html?pagewanted=all&amp;_r=0" style="none" target="_blank">robber barons of the late 19th century</a>. It turns out that the biggest difference between the tech billionaires of the Internet Age and the high rollers of the railroad age is the cigars.</p><p><input id="mac_address" type="hidden" value="" /></p> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-bio field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"> <!--smart_paging_autop_filter--><br /><p><input id="mac_address" type="hidden" value="" /></p> </div></div></div> Tue, 04 Feb 2014 10:59:00 -0800 Dean Baker, The Guardian 954678 at http://www.alternet.org Corporate Accountability and WorkPlace Corporate Accountability and WorkPlace Labor google apple silicon valley AIG Execs Got Bailout Bonuses For Blowing Up the Economy, But American Workers Get Their Pensions Cut http://www.alternet.org/economy/aig-execs-got-bailout-bonuses-blowing-economy-american-workers-get-their-pensions-cut <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">No one has accused city workers in Chicago or Detroit of bringing down the economy, but they could face pension cuts</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/shutterstock_98057822.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>As we passed the fifth anniversary of the peak of the <a href="http://www.theguardian.com/business/financial-crisis" title="More from the Guardian on Financial crisis">financial crisis</a> this fall, the giant insurance company <a href="http://www.theguardian.com/business/aig" title="More from the Guardian on AIG">AIG</a> was prominently featured in the retrospectives. AIG had issued hundreds of billions of dollars of credit default swaps (CDS) on subprime mortgage backed securities. When these mortgage-backed securities failed en masse, AIG didn't have the money to back them up.</p><p>This would have forced AIG into bankruptcy. However Lehman had declared bankruptcy the day before and the world was still engulfed in the aftershocks. The Bush administration and the Federal Reserve board decided that they would stop the cascade of failing financial institutions and bail out AIG. As a result, the government agreed to honor all the CDS issued by AIG and effectively became the owner of the company.</p><p><a href="http://www.theguardian.com/world/chicago" title="More from the Guardian on Chicago">Chicago</a> has been in the news recently because its mayor, Rahm Emanuel, seems intent on cutting the pensions that its current and retired employees have earned. Emanuel insists that the city can't afford these pensions and therefore workers and retirees will simply have to accept reduced benefits.</p><p>If the connection with AIG isn't immediately apparent, then you have to look a bit deeper. Folks may recall that <a href="http://www.nytimes.com/2009/03/15/business/15AIG.html?_r=2&amp;">AIG paid out $170m in bonuses</a> to its employees in March 2009 with its top executives receiving bonuses in the hundreds of thousands of dollars.</p><p>These were people who not only shared responsibility for driving the company into bankruptcy; they also had been at the center of the financial web that propelled the housing bubble into ever more dangerous territory. In other words, the bonus beneficiaries were among the leading villains in the economic disaster that is still inflicting pain across the country.</p><p>The prospect of executives of a bailed out company drawing huge bonuses at a time when the economy was shedding 600,000 jobs a month provoked outrage across the country. President Obama spoke on the issue and said that unfortunately no one in his administration was smart enough to find a way that could keep the bonuses from being paid. The problem according to Larry Summers, then the head of President Obama's National Economic Council, was that the bonuses were contractual obligations and they had to be honored.</p><p>This provides a striking contrast to what might happen to current and former city employees in Chicago and may happen to current and former employers of the state of Illinois and Detroit. In these cases, it seems that the contracts workers had with their employers may not be honored. Employees who worked decades for these governments, with part of their pay taking the form of pensions in retirement, are now being told that these governments will not follow through on their end of the contract.</p><p>The differing treatment of contracts in these situations is striking for several reasons. First, the AIG executives stood to gain much more money with their bonuses on a per person basis. In contrast to the six-figure bonuses going to top executives, pensions for Detroit's workers average just $18,500 a year. Pensions for Chicago's workers average over $33,000 a year, but almost none of these workers will get Social Security, so this will be their whole retirement income.</p><p>In contrast to the top AIG executives, who played a role in bankrupting their company and sinking the economy, no one has accused workers in Chicago or Detroit of doing anything wrong. These were people who taught our kids, put out fires, and picked up garbage. They did their jobs.</p><p>They also might be excused for thinking that they could count on the governments involved to fulfill their end of the contract. After all, both Michigan and Illinois have provisions in their constitution stating that pensions earned by public sector workers cannot be cut. Since cities like Detroit and Chicago are creations of the state governments, workers for these cities, like workers for the state government, might have thought the state constitution protected their pensions. Apparently they should have hired lawyers who could have explained to them why this is not the case.</p><p>There is yet another connection between the plans to cut pensions and AIG. The bond rating agencies played a prominent role in both cases. In the case of AIG meltdown, the bond rating agencies gave investment grade ratings to trillions of dollars of mortgage backed securities (MBS). They often gave these ratings to dubious issues for the simple reason that they were being paid. As one analyst from S&amp;P said in an e-mail, they would rate a new MBS if it "<a href="http://dealbook.nytimes.com/2008/10/22/rating-agencies-draw-fire-capitol-hill/">was structured by cows</a>".</p><p>The bond rating agencies played a similarly disastrous role in the pension problems facing state and local governments. In the stock run-up in the 1990s, they green-lighted accounting that essentially assumed that the stock bubble would continue in perpetuity, effectively growing without limit. This meant that state and local governments didn't have to contribute to their pensions since the stock bubble was doing it for them. States like Illinois and cities like Chicago clung to this habit even after the bubble burst.</p><p>There is one final noteworthy connection between AIG and the Chicago pension situation. Chicago's Mayor, Rahm Emanuel, was President Obama's chief of staff at the time that no one could figure out how to avoid paying the AIG bonuses. Apparently Emanuel has learned more about voiding contractual obligations now that it is ordinary workers at other end of the commitment.</p><p> </p> Tue, 10 Dec 2013 07:31:00 -0800 Dean Baker, The Guardian 934803 at http://www.alternet.org Economy Economy AIG bonus payments controversy aig American International Group bankruptcy bush administration chicago Company Layoffs Company Reorganization Credit rating agency detroit Economic history economics financial services goldman sachs Holdings of American International Group illinois insurance labor larry summers Late-2000s financial crisis lehman michigan national economic council obama pension Person Career Person Location president Quotation rahm emanuel s&p social issues US Federal Reserve USD analyst chief of staff at the time financial web giant insurance head of President Obama mayor state government How Two Secretive Global Trade Deals Will Further Enrich the American Elite http://www.alternet.org/world/how-two-secretive-global-trade-deals-will-further-enrich-american-elite <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">The US-EU free trade pact and the Trans-Pacific Partnership are about securing regulatory gains for major corporate interests.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/800px-leaders_of_tpp_member_states.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>In polite circles in the United States, support for free trade is a bit like proper bathing habits: It is taken for granted. Only the hopelessly crude and unwashed would not support free trade.</p><p>There is some ground for this attitude. Certainly, the US has benefited enormously by being able to buy a wide range of items at lower cost from other countries. However, this does not mean that most people in the country have always benefited from every opening to greater trade.</p><p>And it certainly does not mean that the country will benefit from everything that those in power label as "free trade". That is the story we are seeing now as the Obama administration is pursuing <a href="http://www.huffingtonpost.com/2013/04/04/eu-trade-deal_n_2994410.html" target="_blank">two major "free trade" agreements</a> that in fact have very little to do with free trade and are likely to hurt those without the money and power to be part of the game.</p><p>The deals in questions, the Trans-Pacific Partnership (<a href="http://www.ustr.gov/tpp" target="_blank">TPP</a>) and the <a href="http://www.nytimes.com/2013/02/14/business/global/obama-pledges-trade-pact-talks-with-eu.html?_r=0" target="_blank">US-European Union "Free Trade" Agreement</a> are both being pushed as major openings to trade that will increase growth and create jobs. In fact, eliminating trade restrictions is a relatively small part of both agreements, since most tariffs and quotas have already been sharply reduced or eliminated.</p><p>Rather, these deals are about securing regulatory gains for major corporate interests. In some cases, such as increased patent and copyright protection, these deals are 180 degrees at odds with free trade. They are about increasing protectionist barriers.</p><p>All the arguments that trade economists make against tariffs and quotas apply to patent and copyright protection. The main difference is the order of magnitude. Tariffs and quotas might raise the price of various items by 20 or 30 percent. By contrast, patent and copyright protection is likely to raise the price of protected items 2,000 percent or even 20,000 percent above the free market price. Drugs that would sell for a few dollars per prescription in a free market would sell for hundreds or even thousands of dollars when the government gives a drug company a patent monopoly.</p><p>In the case of drug patents, the costs go beyond just dollars and cents. Higher drug prices will have a direct impact on the public's health, especially in some of the poorer countries that might end up being parties to these agreements.</p><p>There are also a wide variety of regulatory issues that are being pursued through these agreements in large part because there would be difficulty getting them accepted through the normal political process. For example, the sort of government mandated internet policing that was part of the shipwrecked <a href="http://judiciary.house.gov/issues/issues_RogueWebsites.html" target="_blank">Stop Online Piracy Act</a> is likely to reappear in one or both agreements. </p><p>It is also likely that rules that limit the power of governments to restrict fracking could be in the agreements. Such rules could prohibit not only the federal government, but also state or county governments, from imposing restrictions designed to protect the public's health.</p><p>These are the sorts of restrictions that may appear in the TPP and US-EU Free Trade Agreement. The reason for using tentative language is that none of the specifics of the deal have yet been made public. The Obama administration is negotiating these pacts in secret. It has made almost nothing about the negotiating process public and has shared none of the proposed text with the relevant committees in Congress (<a href="http://www.citizen.org/TPP#informed" target="_blank">Public Citizen</a> has posted information on the TPP based on leaked documents).</p><p>Incredibly, it has shared portions of the proposed TPP with the relevant industry groups. While elected representatives in Congress may not be able to find out anything about proposed rules on drug patents or restrictions on fracking, Pfizer and Merck will have the opportunity to weigh in on patent rules and the major oil and gas companies will help to draft language on fracking that serves their interests.</p><p>The idea is that once a deal is completed there will be enormous political pressure for Congress to approve it no matter what it contains. In addition to the campaign contributions that supporters of the deals will get from the special interest groups who stand to benefit, news outlets like the Washington Post will use both their news and opinion sections to bash members of Congress who oppose a deal. They will be endlessly portrayed as ignorant Neanderthals who do not understand economics.</p><p>The reality of course is that it is the "free traders" who either do not understand economics or deliberately choose to ignore it. Many of the provisions that we are likely to see in these deals, like stronger patent protections, will slow growth and cost jobs.</p><p>These deals will also lead to more upward redistribution of income. The more money that people in the developing world pay to Pfizer for drugs and Microsoft for software, the less money they will pay for the products that we export, as opposed to "intellectual property rights". These payments are great if you own lots of stock in drug or software companies, but for the vast majority of the nation's workers who are not big stockholders, extracting money from people in the developing world for these corporate giants is not good news.</p><p>This is yet another case where the government is working for a tiny elite against the interests of the bulk of the population. And it is doing it in a way that would be difficult to caricature: making powerful corporate interests direct negotiating partners, while excluding democratically elected representatives from the process. </p><p>It is tempting to say that Washington could not get more corrupt, but it probably will.</p> Mon, 29 Apr 2013 12:00:00 -0700 Dean Baker, Al Jazeera English 832380 at http://www.alternet.org World Economy World free trade tpp Discredited Harvard Austerity-Pushers Reinhart and Rogoff Keep Lying to Protect Themselves http://www.alternet.org/economy/discredited-harvard-austerity-pushers-reinhart-and-rogoff-keep-lying-protect-themselves <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">They&#039;re having a bad week. But not as bad as those who lost everything to misguided austerity. </div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/shutterstock_78272062.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>Carmen Reinhart and Ken Rogoff, used their second NYT column in a week, to <a class="blank" href="http://www.nytimes.com/2013/04/26/opinion/debt-growth-and-the-austerity-debate.html?hp" target="_blank">complain</a> about how they are being treated. Their complaint deserves tears from crocodiles everywhere. They try to present themselves as ivory tower economists who cannot possibly be blamed for the ways in which their work has been used to justify public policy, specifically as a rationale to cut government programs and raise taxes, measures that lead to unemployment in a downturn.</p><p>This portrayal is disingenuous in the the extreme. Reinhart and Rogoff surely are aware of how their work has been used. They have also encouraged this use in public writings and talks. While it is unfortunate that they have "received hate-filled, even threatening, e-mail messages," as one who works in the lower-paid corners of policy debates, let me say, welcome to the club.</p><p>This column is careful to halfway walk back the main claim of their famous paper, telling us:</p><p>"Our view has always been that causality [between high debt levels and slow growth] runs in both directions, and that there is no rule that applies across all times and places."</p><p>It is good to hear the reference to causation from slow growth to high debt and that "no rule applies across all times and places." However it is worth noting that Reinhart and Rogoff never felt the need to use their access to the NYT's opinion pages to correct all the politicians who used their paper to argue the exact opposite: that their paper implied that countries with high debt levels could anticipate long periods of slow growth.</p><p>In addition to misleading the public about the role their work has played in policy debates, they also are not quite straight about two strictly factual points. The first sentence begins by referring to the publication of their article in May of 2010. This might lead readers to believe that this is when their claims about high debt slowing growth first began to affect public debate on stimulus and deficits. </p><p>This is not right as I know since my first e-mail requesting their data was written in January of 2010. In fact, their work first made a splash in international debates when they put out a version of this article as a <a class="blank" href="http://www.nber.org/papers/w15639" target="_blank">National Bureau of Economic Research working paper</a> in January, 2010. Their findings were already widely known by the time the paper was published in May, 2010.</p><p>The other point on which they mislead readers is the claim:</p><p>"Our 2010 paper found that, over the long term, growth is about 1 percentage point lower when debt is 90 percent or more of <a class="blank" href="http://topics.nytimes.com/top/reference/timestopics/subjects/u/united_states_economy/gross_domestic_product/index.html?inline=nyt-classifier" target="_blank" title="More articles about the U.S. gross domestic product.">gross domestic product</a>. The University of Massachusetts researchers do not overturn this fundamental finding, which several researchers have elaborated upon."</p><p>Actually, their 2010 paper found that growth was 2.9 percentage points lower in countries with debt to GDP ratios above 90 percent than in the group with debt to GDP ratios in the 60-90 percent range as we can see in this nice chart from Robert Samuelson's <a class="blank" href="http://www.washingtonpost.com/opinions/robert-samuelson-the-reinhartrogoff-brawl/2013/04/24/6ed05be6-ad01-11e2-b6fd-ba6f5f26d70e_story.html" target="_blank">column</a> yesterday.</p><p> </p><table><tbody><tr><td align="left" valign="middle" width="19.01%"><strong>Debt/GDP</strong></td><td align="left" colspan="2" valign="middle" width="80.99%"><strong>Annual economic growth, 1945-2009</strong></td></tr><tr><td align="left" valign="middle" width="19.01%"> <hr /></td><td align="left" valign="middle" width="32.34%"><strong>Reinhart/Rogoff</strong><hr /></td><td align="left" valign="middle" width="48.65%"><strong>UMass economists</strong><hr /></td></tr><tr><td align="left" valign="middle" width="19.01%">0-30%</td><td align="left" valign="middle" width="32.34%">4.1%</td><td align="left" valign="middle" width="48.65%">4.2%</td></tr><tr><td align="left" valign="middle" width="19.01%"><hr /></td><td align="left" valign="middle" width="32.34%"><hr /></td><td align="left" valign="middle" width="48.65%"><hr /></td></tr><tr><td align="left" valign="middle" width="19.01%">30-60</td><td align="left" valign="middle" width="32.34%">2.8</td><td align="left" valign="middle" width="48.65%">3.1</td></tr><tr><td align="left" valign="middle" width="19.01%"><hr /></td><td align="left" valign="middle" width="32.34%"><hr /></td><td align="left" valign="middle" width="48.65%"><hr /></td></tr><tr><td align="left" valign="middle" width="19.01%">60-90</td><td align="left" valign="middle" width="32.34%">2.8</td><td align="left" valign="middle" width="48.65%">3.2</td></tr><tr><td align="left" valign="middle" width="19.01%"><hr /></td><td align="left" valign="middle" width="32.34%"><hr /></td><td align="left" valign="middle" width="48.65%"><hr /></td></tr><tr><td align="left" valign="middle" width="19.01%">90+</td><td align="left" valign="middle" width="32.34%">-0.1</td><td align="left" valign="middle" width="48.65%">2.2</td></tr><tr><td align="left" valign="middle" width="19.01%"><hr /></td><td align="left" valign="middle" width="32.34%"><hr /></td><td align="left" valign="middle" width="48.65%"><hr /><hr /><hr /></td></tr></tbody></table><p><br />Source: <a class="blank" href="http://www.washingtonpost.com/opinions/robert-samuelson-the-reinhartrogoff-brawl/2013/04/24/6ed05be6-ad01-11e2-b6fd-ba6f5f26d70e_story.html" target="_blank">Robert Samuelson</a>.</p><p>People in policy debates would rightly view the prospect of annual growth slowing by 2.9 percentage points as being a very serious matter. That would imply a country with a debt rising above the 90 percent threshold would have an economy that is one-third smaller after a decade as a result of its high debt level. That is a very serious decline in living standards. If this sort of falloff in growth was a predictable result of letting the debt to GDP ratio rise about the 90 percent threshold, then policymakers would certainly be justified in taking strong measures to reduce deficits.</p><p>On the other hand, the 1.0 percentage point falloff they find in their corrected data would not come close to prompting the same reaction, especially since "causality runs in both directions." The falloff they find in their corrected data is not even close to being statistically significant.</p><p>Furthermore, in their corrected data, the sharpest falloff in growth occurs at much lower debt-to-GDP ratios. If Reinhart and Rogoff were making policy recommendations based on what their data actually show they would be telling countries to maintain very low debt levels, in the range of 15-20 percent of GDP. Since they have never highlighted this point, one might reasonably question the extent to which their policy recommendations relate to their research.</p><p>One final point deserves mention in this discussion. Debt is one side of a balance sheet. Countries have assets. The United States government owns tens of trillions of dollars of land, mineral rights, fishing rights, broadcast frequencies and other assets that could in principle be sold. In most cases there are good reasons not to sell these assets. However if we really believed that high debt levels horribly hobbled growth, then it would likely be worth selling off some of these assets.</p><p>Suppose we believed the original Reinhart-Rogoff 2.9 percentage point growth falloff number. If our debt-to-GDP ratio were at 100 percent of GDP, we could sell off $3.2 trillion in assets to bring the debt-to-GDP ratio down to a safe 80 percent level. This would lead to a growth dividend of more than $28 trillion over the next decade. In other words, we would be able to pocket more than 8 times the market value of these assets in the form of added growth, and that is just over the first decade.</p><p>To my knowledge no one in public debate, including Reinhart and Rogoff, have advocated this sort of massive asset sale. Yet the payoff of more than 8 to 1, has to swamp the benefits from almost any other public policy imaginable. This seems pretty compelling evidence that no one really believes that high debt levels actually lead to slow growth.</p><p>In other words, this is a fig leaf. Reinhart and Rogoff's work is a cover for political actors who do not want to take steps to boost the economy and lower the unemployment rate and who want to cut programs like Social Security and Medicare. It is not part of a honest policy debate.</p> Fri, 26 Apr 2013 07:09:00 -0700 Dean Baker, Beat the Press 831056 at http://www.alternet.org Economy Economy Education World business Carmen Reinhart Debt-to-GDP ratio debt Dividend economics finance Financial economics Government debt gross domestic product Ken Rogoff Kenneth Rogoff macroeconomics massachusetts medicare national bureau of economic research Political debates about the United States federal budget Robert Samuelson USD United States government United States public debt united states University of Massachusetts Erskine Bowles Dismisses Facts on Deficits. Perhaps Because He Collects Millions for Deceiving the Public? http://www.alternet.org/news-amp-politics/erskine-bowles-dismisses-facts-deficits-perhaps-because-he-collects-millions <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Overwhelming evidence shows that there is little obvious reason to fear higher debt levels. </div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/photo_1351180017000-1-0.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Most of us accept that the earth goes around the sun. This is impressive since we can look up in the sky and see the sun going around the earth. We believe the opposite because we have been told about the research of astronomers over the centuries showing that what we can see with our own two eyes is wrong. Instead we accept that the motion of the stars and planets can be much better explained by the earth going around the sun.</p><p>Suppose for a moment that astronomers and people who write on astronomy did not agree on earth or solar orbits. Imagine that a substantial group of these people, including many of the most prominent astronomers, insisted that the sun goes around the earth, as anyone can plainly see. In that case there would likely be huge numbers of people who refused to accept that the earth goes around the sun. This is the state of modern economics.</p><p>A <a href="http://www.peri.umass.edu/236/hash/31e2ff374b6377b2ddec04deaa6388b1/publication/566/" target="_hplink">new study</a> by three researchers at the University of Massachusetts found major arithmetic errors in the widely cited paper by Carmen Reinhart and Ken Rogoff, "Growth in a Time of Debt," that purports to show high levels of government debt sharply slow growth. This study has been widely cited by political figures demanding deficit reduction, in spite of the fact that the unemployment rate remains high and interest rates are at extraordinarily low levels.</p><p>When the errors in the Reinhart and Rogoff study are corrected, the strong relationship between high debt levels and slower growth disappears. In other words, there is little obvious reason that we need fear higher debt levels. We can have the government make investments in infrastructure and education that will boost growth, create jobs, and increase future productivity.</p><p>If economics were like astronomy, the experts in the field would all be calling for the government to spend what is needed to boost growth. But economics is not like astronomy. When this key piece of evidence arguing for austerity was discredited, many experts just doubled down.</p><p>If any prominent economists reversed their support for austerity, they did so quietly, but the best comment came from <a href="http://thehill.com/blogs/on-the-money/budget/295017-bowles-dismisses-flaws-in-favorite-debt-study" target="_hplink">Erskine Bowles</a>, the co-chair of President Obama's deficit commission:</p><blockquote>What it doesn't change is the common sense and my own personal experience in both the public and private sector that when any organization has too much debt that is an enormous risk factor and your risks go up then people lending you money will want more money for their money.</blockquote><p>In other words, Bowles told the public to ignore the state of economic research; we can all see the sun goes around the earth.</p><p>Of course economists could explain how governments are not like people. In principle, governments do not die. A country such as the United States borrows in its own currency so it literally can never go bankrupt as long as it knows how to print dollar bills. And, unlike an individual, the government has the obligation to support the economy when private sector demand collapses as it did after the housing bubble burst. But hey, Erskine Bowles knows from his personal experience we are borrowing too much and the sun goes around the earth.</p><p>It may help explain the difference between debates in astronomy and economics that many people can profit from slow growth and high unemployment. The after-tax profit share of GDP is at its highest level more than 60 years. For those who own lots of stock and are at the top of the income ladder, times are good. These people may see efforts to lower unemployment as posing a risk. With lower unemployment workers may be able to get a larger share of productivity growth. This may be good for most of the country and mean increased economic growth, but it would mean less for the one percent.</p><p>In the current situation, the blame for the bad economic situation of much of the workforce turns to the failure of individual workers. There is no shortage of news articles that <a href="http://www.cepr.net/index.php/blogs/beat-the-press/the-disappearing-middle-is-a-cover-up-for-bad-economic-policy-coming-from-the-top" target="_hplink">blame workers</a> for lacking the skills needed to succeed in the modern economy, as opposed to blaming policymakers for failing to design policies that keep the economy operating at its capacity.</p><p>It is probably worth noting that playing the role of an Erskine Bowles and spreading confusion about basic economics carries large financial rewards. According to the <a href="http://www.nytimes.com/2012/11/28/us/politics/now-touring-the-debt-duo-simpson-bowles.html?pagewanted=all" target="_hplink"><em>New York Times</em></a>, Erskine Bowles gets paid $40,000 for many of his speeches.</p><p>In addition, Bowles has collected millions of dollars sitting as a director on corporate boards. Perhaps most notable are the hundreds of thousands of dollars that he pocketed as a director of <a href="http://www.morganstanley.com/about/ir/SECFilings/archive/proxy08/noticeandproxy.htm#tx82193_27" target="_hplink">Morgan Stanley</a>, one of the too-big-to-fail banks that would have gone bankrupt in 2008 had it not been saved by the Fed. He also was <a href="http://www.cepr.net/index.php/blogs/cepr-blog/the-erskine-bowles-stock-index" target="_hplink">pocketed hundreds of thousands of dollars</a> as director of General Motors until it actually did go bankrupt in 2009.</p><p>The point is that there is lots of money on the table for those who are willing to use their status to help spread confusion and convince the public that there is nothing that can be done about continuing high unemployment and stagnant wages. And every economist knows that if there is money sitting on the table someone will take it. There will be no shortage of reputable economists and economic pundits prepared to yell about the risks of the debt, even if they have no evidence to support their concerns.</p> Wed, 24 Apr 2013 09:48:00 -0700 Dean Baker, Beat the Press 829909 at http://www.alternet.org News & Politics Economy News & Politics austerity bankruptcy Carmen Reinhart economic policy economics erskine bowles fiscal policy general motors Government debt Ken Rogoff massachusetts morgan stanley obama Person Career Political debates about the United States federal budget Public economics Quotation US Federal Reserve USD unemployment united states University of Massachusetts co-chair of President Obama director economist the new york times Senate Unanimously Votes Against Cuts to Social Security, Media Don't Notice http://www.alternet.org/news-amp-politics/senate-unanimously-votes-against-cuts-social-security-media-dont-notice <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Most of the elite media have made it clear in both their opinion and news pages that they want to see benefits cut.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/shutterstock_14517331.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>There are few areas where the corruption of the national media is more apparent than in its treatment of Social Security. Most of the elite media have made it clear in both their opinion and news pages that they want to see benefits cut. In keeping with this position they highlight the views of political figures who push cuts to the program, treating them as responsible, while those who oppose cuts are ignored or mocked.</p><p>This pattern of coverage was clearly on display last weekend. Both the <a href="http://www.nytimes.com/2013/03/24/us/politics/senate-passes-3-7-trillion-budget-its-first-in-4-years.html?hp" target="_hplink"><em>New York Times</em></a> and <a href="http://www.washingtonpost.com/business/economy/senate-passes-first-budget-in-four-years/2013/03/23/cd582dc8-9399-11e2-a31e-14700e2724e4_story.html" target="_hplink"><em>Washington Post</em></a> decided to ignore the Senate's passage by voice vote of the Sanders Amendment. This was an amendment to the budget put forward by Vermont Senator Bernie Sanders that puts the Senate on record as opposing the switch to the chained CPI as the basis for the annual Social Security cost-of-living adjustment (COLA).</p><p>Switching the basis for the COLA to the chained CPI is one of the most beloved policies of the Washington elite. The idea is that it would reduce scheduled benefits for retirees by 0.3 percentage points annually. This amounts to a cut of 3 percent after 10 years, 6 percent after 20 years, and 9 percent after 30 years.</p><p>If a typical retiree lives to collect benefits for 20 years the average cut in benefits over their retirement ends up being around 3 percent. This is a much bigger hit to the typical retiree, who relies on Social Security for more than two-thirds of their income, than the tax increases put into law this year were to the typical rich person.</p><p>But the magic of the chained CPI is that everyone gets to run around saying that they are not really cutting benefits, they are just "adjusting" the cost of living formula. And the media do their best to assist the politicians pushing these cuts. They almost always uses euphemisms like "changing" or "restructuring" Social Security, trying to conceal the simple reality that politicians are pushing cuts to the program.</p><p>It is also worth noting, in contrast to the claims of the pretentious elites, there is no -- as in zero, nada, none -- basis for the claim that the chained CPI would give a more accurate measure of the rate of inflation experienced by seniors. Research by the Bureau of Labor Statistics (BLS) shows that the rate of inflation seen by seniors is actually higher than the CPI that provides the basis for the current COLA.</p><p>While this research is far from conclusive, the answer for those interested in accuracy would be to have the BLS construct a full CPI for seniors. But the Washington elites don't give a damn about accuracy, which is why not one of them has called for a full elderly CPI. The elite want cuts to Social Security; accuracy is just something they talk about to children and reporters for major media outlets.</p><p>This is why the vote on the Sanders Amendment should have been newsworthy. Here was an opportunity for all the senators who have explicitly or implicitly supported the adoption of the chained CPI to step up and say why the switch to the chained CPI was a good and necessary measure. However, not one senator was prepared to stand up and argue the case. Not one member of the Senate wanted to go on record in support of this cut to Social Security.</p><p>With all the Republicans who pronounce endlessly on the need to cut entitlement spending, there was not a single Republican senator who was prepared to say that switching the Social Security COLA to a chained CPI was a good idea. And even though President Obama has repeatedly stated as clearly as he could that he supported the switch to a chained CPI, there was not one Democratic senator who was prepared to stand up and speak in solidarity with the president.</p><p>This is a clear case of the elite lining up together against the bases of <a href="http://www.nasi.org/press/releases/2013/01/press-release-americans-make-hard-choices-social-security" target="_hplink">both political parties</a>. If the chained CPI were put to a vote of the people it would lose in a landslide. But the elites are prepared to use their control of the political process and the media to do everything they can to push this cut forward.</p><p>The battle over the chained CPI provides a great case study in the state of American democracy. We will get to see whether the rich and powerful are able to attack a program that is vital to the security of almost all working people, even when the vast majority in both parties stand against them.</p> Mon, 25 Mar 2013 18:59:00 -0700 Dean Baker, Beat the Press 814877 at http://www.alternet.org News & Politics Economy Media News & Politics bernie sanders Bureau Of Labor Statistics Communist Party of India Consumer price index by country Consumer price index cost of living Democratic senator economics inflation major obama Person Career politics president Price indices Quotation senate senator social issues social security socialism Taxation in the United States vermont washington post washington cuts elite media forward single Republican senator the new york times Minimum Wage: Who Decided That Hard-Working Americans Should Fall Behind? http://www.alternet.org/economy/minimum-wage-who-decided-hard-working-americans-should-fall-behind <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">There is no economic reason why those at the bottom should not share in the gains from economic growth.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/shutterstock_83078401.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>It was encouraging to see President Obama propose an increase in the minimum wage in his State of the Union address, even if the $9.00 target did not seem especially ambitious. If the $9.00 minimum wage were in effect this year, the inflation-adjusted value of the minimum wage would still be more than two percent lower than it had been in the late 1960s. And this proposed target would not even be reached until 2015, when inflation is predicted to lower the value by another 6 percent.<br /><br />While giving a raise worth more than $3,000 a year to the country's lowest paid workers is definitely a good thing, it is hard to get too excited about a situation in which these workers will still be earning less than their counterparts did almost 50 years ago. By targeting wage levels that roughly move in step with inflation we have implemented a policy that workers at the bottom will receive none of the benefits of economic growth through time. In other words, if we hold the purchasing power of the minimum wage fixed through time, as the country as a whole gets richer, minimum wage workers will fall ever further behind.</p><p>It is important to realize that this was not always the case. The federal minimum wage was first put in place in 1938. From that year until 1968 when its value peaked, the purchasing power of the minimum wage increased by more than 140 percent. As a result, minimum wage workers saw a sharp increase in their living standards. Over this 30 year period, low wage workers shared in the gains of the economy as a whole as the minimum wage rose in step with productivity growth.<br /><br />If workers at the bottom had continued to share in the economy's growth in the years since 1968 as they had in the three decades before 1968, we would be looking at a very different economy and society. If the minimum wage had risen in step with productivity growth <a href="http://www.cepr.net/index.php/blogs/cepr-blog/the-minimum-wage-and-economic-growth" target="_hplink">it would be over $16.50 an hour today</a>.That is higher than the hourly wages earned by 40 percent of men and half of women.</p><p>It shouldn't seem strange that the wages of workers at the bottom rise in step with productivity, after all they do for many other workers even when the work has not in any direct way become more complex. For example, when a realtor is selling a $400,000 home rather than a $200,000 home it does not necessarily require any greater effort or skills. In fact, if we were talking about the years of the housing bubble, it may just be the case that the same home had doubled in price. Yet, the commission will be twice as much.<br /><br />There would be similar stories in many other occupations where the growth of the economy by itself would tend to make wages rise. It is not obviously more difficult or time-consuming to sell 1,000 shares of stock or credit default swaps at prices that are twice as high, yet the commissions going to the brokers are likely to be twice as large.<br /><br />Doctors, lawyers, and other highly educated professionals have also been positioned to benefit from the growth in the economy. We have left those at the bottom out. This has been by design and nowhere is that more clearly the wage with a minimum wage that has been set at level that has not even kept pace with the cost of living.</p><p>As a practical matter we couldn't possibly raise the minimum wage any time soon to $16.50 without serious disruptions to the economy. One result would also be higher prices in the economy. Of course this is also the result of having doctors who average $250,000 a year and Wall Street bankers who can pocket many millions of dollars a year. Their income is a cost to everyone else.<br /><br />Somehow the issue of higher prices and inflation is an important point when we discuss the wages of people getting $7.25 an hour to wash dishes but it is not supposed to enter into polite conversations when we talk about the most highly paid workers. That is a political choice, not an economic one.</p><p>We <a href="http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism" target="_hplink">have structured our economy</a> so that we can get cheap restaurant meals because of low-paid workers. Hotel stays cost less because we ensure a plentiful supply of workers at near the minimum wage. And convenience stores stay open 24 hours because the people working the midnight shift get paid almost nothing.<br /><br />There is no economic reason why those at the bottom should not share in the gains from economic growth. And there is no economic reason why those at the top should be such disproportionate beneficiaries. We rigged the deck this way more than three decades ago. We can restructure the rules so that money no longer flows upwards. A minimum wage that again follows in step with productivity growth would be a large part of this reversal.</p> Tue, 19 Feb 2013 08:44:00 -0800 Dean Baker, Beat the Press 797042 at http://www.alternet.org Economy Economy Labor News & Politics business economics Employment compensation Human resource management inflation Labor economics labor living wage macroeconomics Minimum wage in the United States minimum wage obama Person Career president socialism state of the union USD Corporate-backed 'Fix the Debt' Campaign Only Wants to Protect Wall Street http://www.alternet.org/economy/corporate-backed-fix-debt-campaign-only-wants-protect-wall-street <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Funny how they don&#039;t seem to want a financial transaction tax. </div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/rich_guy.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>At this point everyone knows about Fix the Debt. It is a collection of corporate CEOs put together by Peter Peterson, the Wall Street private equity mogul. Ostensibly they want to reduce budget deficits and the national debt, but for some reason their attention always seems focused on cutting Social Security and Medicare. While some in this group will allow for minor tax increases, budget cuts are explicitly a priority, with these two programs firmly in their crosshairs.</p><p>Given that the stated goal of this group is to reduce budget deficits, it is worth asking why taxes don’t figure more prominently on their agenda. After all, the United States ranks near the bottom of wealthy countries in its tax take as a share of GDP. It is also worth asking why one tax in particular, a financial transactions tax, never seems to get mentioned in anything the group or its members do.</p><p>This omission is striking because so many others in budget debates in the United States and around the world regularly suggest such a tax. There is a long list of highly respected economists who have advocated such taxes, starting with John Maynard Keynes. The list includes many Nobel Prize winners, most notably James Tobin who wrote several papers arguing for such a tax as a way to both raise revenue and slow speculative trading.</p><p>Financial transactions taxes are hardly new. The United Kingdom has had a tax on stock trades in place since 1694. It still imposes a tax of 0.5 percent on trades. Relative to the size of its economy the tax raises the equivalent of $30-40 billion a year in the United States. Many other countries, including India and China, have financial transactions taxes. The United States used to have a tax of 0.04 percent on stock trades until 1966 and still has a very small tax that is used to finance the Securities and Exchange Commission.</p><p>In the wake of the financial crisis there has been renewed interest in a financial speculation tax. The European Union recently decided to move ahead with implementing a tax which will first be imposed in 2015 or 2016. There is also considerable interest in the United States. While financial speculation taxes have been included as a funding mechanism in many bills there were two standalone bills introduced in Congress last year.</p><p>A bill introduced by Tom Harkin in the Senate and Peter DeFazio in the house would apply a tax rate of 0.03 percent (that is 3 cents on $100 dollars) on trades of stocks, bonds and derivatives. The Congressional Joint Tax Committee projected that the tax would raise close to $40 billion a year. That would come to $400 billion over a decade. Minnesota Representative Keith Ellison introduced a bill that would scale the tax rate by asset, starting with the same 0.5 percent rate the U.K. imposes stock trades. This bill could raise as much as $180 billion a year.</p><p>The concept of a transactions tax has received considerable support from grassroots groups around the country. It has also been endorsed by many unions, including the National Nurses United, SEIU, and the AFL-CIO.</p><p>Given all the interest in a financial speculation tax it is striking that the Fix the Debt crew never even mention it when discussing their efforts at deficit reduction. That seems to cry out for an explanation.</p><p>One possibility is that they haven’t heard of it. That one is too out in space to take seriously. Even the IMF has <a href="http://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=1&amp;sqi=2&amp;ved=0CDIQFjAA&amp;url=http%3A%2F%2Fwww.imf.org%2Fexternal%2Fnp%2Fg20%2Fpdf%2F062710b.pdf&amp;ei=b3YWUYn1M8KB0AGTh4GwCw&amp;usg=AFQjCNGuwJVb88BF4cmfrHn-ZvAHQGn1IQ&amp;sig2=5k6XSoDfZq34Gu1brrTcbg&amp;bvm=bv.42080656,d.dmQ&amp;cad=rja" target="_blank">written</a> on financial transactions taxes and in fact advocated increasing taxes on the financial sector. How could the Debt Fixers not know about the proposals for financial transactions taxes?</p><p>It is possible that they have a slam dunk argument that a financial speculation tax would just be bad news for the economy or really wouldn’t raise any revenue. If so, it would be nice if they could share it with the rest of us so that we didn’t waste our time giving FSTs further consideration. After all, in addition to all the politicians and policy types to who have been devoting time to the issue, most of the European Union is about to put a tax into law in 2-3 years. If the Debt Fixers know of some horrible problem that all the researchers, including the IMF, have missed they would do us an enormous favor by setting us straight.</p><p>Then there is possibility number three. Many of the debt fixers, such as <a href="http://www.morganstanley.com/about/ir/SECFilings/archive/proxy08/noticeandproxy.htm#tx82193_27" target="_blank">Morgan Stanley director</a> Erskine Bowles and Peter Peterson, the master debt fixer himself, have longstanding ties to the financial industry. They may not be interested in a financial speculation tax for the simple reason that it could eat into their bread and butter. We should no more expect the Debt Fixers to support a FST than we would expect a farmers’ lobby to support an end to farm subsidies.</p><p>On the plausibility scale, explanation number three would seem to be the most credible. We have a group of rich finance types using their wealth to advance their agenda. There’s nothing new in this story, that’s the way Washington politics has always worked. The question we should then ask is, why do the <em>Washington Post</em>, National Public Radio, and the Sunday morning talk shows take these people seriously?</p><p> </p> Tue, 12 Feb 2013 10:51:00 -0800 Dean Baker, AlterNet 793501 at http://www.alternet.org Economy Economy News & Politics American Federation of Labor - Congress of Industrial Organizations business China congress Congressional Joint Tax Committee economics erskine bowles european union finance financial transaction tax Government debt india International Monetary Fund International taxation james tobin john maynard keynes keith ellison medicare minnesota morgan stanley national public radio Person Career peter defazio peter peterson Political economy Public economics Quotation Representative seiu Securities and Exchange Commission senate tax haven tax taxation tobin tax tom harkin USD united kingdom united states Value added tax washington post washington cent director finance types Whaddya Know? Professional Economy Wrecker Alan Greenspan Is at the Heart of the Insidious 'Fix the Debt' Campaign http://www.alternet.org/economy/whaddya-know-professional-economy-wrecker-alan-greenspan-heart-insidious-fix-debt-campaign <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Mr. Incompetent rears his ugly head in corporate deficit hawk coalition.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/greenspan.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>Alan Greenspan will go down in history as the person who has done more damage to the U.S. economy and society that anyone who was not a foreign enemy. In fact the destruction he wreaked through his incompetence would also exceed the damage caused by almost all would-be enemies as well.</p><p>Greenspan accomplished the remarkable feat as Fed chair of ignoring the growth of the $8 trillion housing bubble. This bubble could not have been easier to see if it had been 500 feet high and lit up with huge neon signs saying "Huge Housing Bubble." But Greenspan insisted the bubble was not there.</p><p>And Greenspan somehow didn't recognize that the collapse of this massive bubble would devastate the economy. The bubble was generating over $1 trillion in annual demand through its direct impact on housing construction and its indirect impact on consumption through the housing wealth effect. This demand would inevitably disappear when the bubble burst, leaving a huge hole in demand.</p><p>Did Greenspan think that the private sector had some magic formula to replace this demand? What could he have been thinking or smoking?</p><p>If we had a political debate that was driven by evidence, where the accuracy of one's past judgements played any role in the credibility granted their current opinion, then Greenspan would be relegated to the role of ranting fool. His opinions on the economy would be given slightly less credibility than the mumblings of a street drunk.</p><p>This is why it would have been worth highlighting the news contained in a NYT <a class="blank" href="http://www.nytimes.com/2012/12/24/business/campaign-to-fix-the-debt-gains-steam-after-years-in-the-making.html?pagewanted=1&amp;hpw" target="_blank">article</a> on the origins of the "Campaign to Fix the Debt," the corporate financed effort to reduce the deficit. The article tells readers in passing:</p><p>"The Campaign to Fix the Debt started to come together at a salon dinner held in the backyard of Senator Mark Warner, Democrat of Virginia, in the fall of 2011. An influential group of economic, political and business leaders — including the former Federal Reserve chairman Alan Greenspan and Mark Bertolini, the chief executive of the Aetna insurance company — huddled in a too-small tent in the pouring rain."</p><p>This is such an amazing tidbit that it really should have been the lead of the article. The person most responsible for wrecking the economy -- and incidentially adding trillions of dollars to the debt -- was there at the founding of the Campaign to Fix the Debt.</p><p>Wow, what did Santa get you for Christmas?</p><p> </p><p> </p> Mon, 24 Dec 2012 16:13:00 -0800 Dean Baker, Beat the Press 766432 at http://www.alternet.org Economy Economy News & Politics aetna alan greenspan business christmas Economic bubbles economics Financial crises macroeconomics Mark Bertolini mark warner Objectivists Person Career Person Party real estate bubble Socioeconomics US Federal Reserve USD United States housing bubble united states virginia chair chairman chief executive influential insurance What do the Budget Thugs Trying to Gut the Safety Net Really Know About the Economy? http://www.alternet.org/economy/what-do-budget-thugs-trying-gut-safety-net-really-know-about-economy <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">They say we have to cut Social Security and Medicare because they say so.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/shutterstock_90611947.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Ed Haislmaier, a senior scholar at the<a href="http://www.huffingtonpost.com/2012/12/04/ed-haislmaier-fix-the-debt_n_2239506.html" target="_blank">Heritage Foundation, made himself famous in this video </a>where he appears to be assaulting people protesting a conference organized by Fix the Debt. While this act of bad temper may be uncharacteristic of the public behavior of this corporate-sponsored crusade to cut Social Security and Medicare, it does reflect the way in which they hope to bully their agenda through the political process.</p><p>The line from Fix the Debt, an organization that includes the CEOs of many of the country's largest corporations, and <a href="http://www.washingtonpost.com/opinions/opening-bids-on-fiscal-cliff-talks-are-too-small/2012/12/04/2f6af98c-3e4a-11e2-a2d9-822f58ac9fd5_story.html" target="_self">allies like The Washington Post </a>is that we better have cuts to Social Security and Medicare because they say so. Note that they did not try to push this line in the elections. Everyone knows that cuts to these programs are hugely unpopular across the political spectrum.</p><p>The Fix the Debt strategy was explicitly to wait until after the election. They would then go into high gear pushing their agenda of cutting Social Security and Medicare regardless of who won the elections. Remember, we need these cuts because they say so.</p><p>It is worth repeating the "they say so" part, because this is the only way we could know that cuts to Social Security and Medicare are necessary. It is possible to tell stories about countries where a meltdown in financial markets forced sharp budget cuts, but there is zero evidence of that for the United States. Investors are willing to lend the U.S. government vast amounts of money at extremely low interest rates. The only reason that we have for believing that financial markets will panic if we don't make the Social Security and Medicare cuts that the Debt Fixers want to make is because they say so.</p><p>For this reason, it is worth considering what the Debt Fixers know or don't know about the economy. This means bringing up a still fresh wound: why did none of these people see the housing bubble whose collapse wrecked the economy?</p><p>It is important to understand the bubble was not hard to see, nor did it require much knowledge of economics to realize that its collapse would devastate the economy.</p><p>The bubble was an unprecedented nationwide run-up in house prices. For the 100 years from 1896 to 1996, nationwide house prices had, on average, just tracked the overall rate of inflation. In the decade from 1996 to 2006, house prices rose by more than 70 percentage points in excess of the rate of inflation.</p><p>How could anyone following the economy miss this? There are reports on house prices released every month; did none of the Debt Fixers ever look at them during the bubble years?</p><p>And there was no explanation for this extraordinary run up of prices in the fundamentals of the housing market. Population and income growth in the last decade were slow, not fast. And there was no corresponding increase in rents. If fundamentals were driving the explosion in house prices, then there should have been some pressure on rents, as well. And vacancy rates were hitting all-time highs. How does that fit with a supply-and-demand story driving up house prices?</p><p>The fact that the housing bubble was driving the economy was also not hard to see. Typically, housing construction is less than 4 percent of gross domestic product (GDP). It peaked at more than 6 percent of GDP in 2005. Couldn't the Debt Fixers find the GDP data released every month by the Commerce Department?</p><p>Housing wealth was also driving a consumption boom as the saving rate fell to nearly zero in the years from 2004-2007. Did the Debt Fixers think that people would keep borrowing against their homes when the equity in their homes disappeared?</p><p>The bursting of the bubble meant a loss in <em>annual</em> demand of more than $1 trillion when the construction and consumption boom both collapsed. What exactly did the Debt Fixers think would replace this demand?</p><p>Did they think that firms would suddenly double their investment as they saw their markets collapse? Did they think that consumers would just spend like crazy even as their housing wealth vanished? If they have a theory as to how the economy could quickly replace the demand generated by the housing bubble without large government budget deficits, it would be great if they would share.</p><p>The reality is that the Debt Fixers and their allied economists and policy wonks saw none of the above. They were completely out to lunch in their understanding of the economy.</p><p>The Debt Fixers and their allies will have to explain for themselves how they managed to miss something as huge and important to the economy as the housing bubble. However, missing an $8 trillion housing bubble is not a small mistake. It is the sort of thing that, in other lines of work, gets you fired and sent looking for a new career.</p><p>What would Michelle Rhee, the hero of the "school reform" movement, do to a public school teacher if all of that teacher's students had huge drops in scores from the prior year? The economic experts among the Debt Fixers all fit this failed-teacher description.</p><p>This means that when we get a whole bunch of seemingly important and knowledgeable people telling us that we must cut Social Security and Medicare because the markets demand it, we have to remember that these are people who were just recently shown to be completely out to lunch in their economic judgment. If the Debt Fixers expect the country to take their pronouncements seriously, they should be forced to answer one simple question: when did you stop being wrong about the economy?</p> Tue, 11 Dec 2012 14:59:00 -0800 Dean Baker, Truthout 759184 at http://www.alternet.org Economy Economy Election 2016 The Right Wing deficit hawks fiscal slope medicare social security Why Big Bucks Donors Don't Want President Obama to Champion Social Security http://www.alternet.org/election-2012/why-big-bucks-donors-dont-want-president-obama-champion-social-security <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">After stock market shocks and the housing bubble, social security more vital than ever before. But the money men hate it. </div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/screen_shot_2012-10-17_at_12.33.15_pm.png" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>It is remarkable that social security hasn't been a more prominent issue in the presidential race. After all, Governor Romney has proposed a plan that would imply cuts of more than 40% for middle-class workers just <a href="http://www.mittromney.com/issues/social-security">entering the labor force</a>. Since social security is <a href="http://politicalticker.blogs.cnn.com/%202011/07/21/cnnorc-poll-july-18-21-debt-ceiling/">hugely popular</a>across the political spectrum, it would seem that President Obama could gain an enormous advantage by clearly proclaiming his support for the program.</p><p>But President Obama has consistently refused to rise to the defense of social security. In fact, in the first debate, he explicitly took the issue off the table, telling the American people that there is not much difference between his <a href="http://www.huffingtonpost.com/rj-eskow/town-hall-debate_b_1965681.html">position</a> on social security and Romney's.</p><p>On its face, this is difficult to understand. In addition to being good politics, there are also solid policy grounds for defending social security. The social security system is perhaps the greatest success story of any program in US history. By providing a core retirement income, it has lifted tens of millions of retirees and their families out of poverty. It also provides disability insurance to almost the entire workforce. The amount of fraud in the system is minimal, and the administrative costs are <a href="http://www.globalaging.org/pension/us/socialsec/myth.htm">less than</a> one 20th as large as the costs of private-sector insurers.</p><p>In addition, the program is more necessary now than ever. The economic mismanagement of the last two decades has left the baby boomers ill-prepared for retirement – few have traditional pensions. The stock market crashes of the last 15 years <a href="http://www.huffingtonpost.com/david-callahan/401k-a-perfect-failure_b_1574834.html">have left</a> 401(k)s depleted, and the collapse of the housing bubble destroyed much of their housing equity, which has always been the main source of wealth for middle-income families.</p><p>It would be great if we had reason to believe that the generations that followed had better retirement prospects, but we don't. Even in good times, the 401(k) system does more to enrich the financial industry than to provide a secure retirement income. Any reasonable projection indicates that social security will provide the bulk of retirement income for most middle-class retirees long into the future. In this context, the idea of cutting back benefits, even for younger workers, seems misguided.</p><p>But there is another set of economic considerations affecting the politics of social security. These considerations involve the economics of the political campaigns and the candidates running for office. The story here is a simple one: while social security may enjoy overwhelming support across the political spectrum, it does not poll nearly as well among the wealthy people – who finance political campaigns and own major news outlets. The predominant philosophy among this group is that a dollar in a workers' pocket is a dollar that could be in a rich person's pocket – and these people see social security putting lots of dollars in the pockets of people who are not rich.</p><p>Cutting back benefits could mean delays in repaying the government bonds held by the <a href="http://en.wikipedia.org/wiki/Social_Security_Trust_Fund">Trust Fund</a>. The money to repay these bonds would come primarily from a relatively progressive income tax revenue. The wealthy certainly don't want to see changes like raising the cap on wages that are subject to the social security tax, which is currently<a href="http://www.pbs.org/wnet/need-to-know/transcripts-full-episode/transcript-october-12-2012/15143/">just over</a> $110,000.</p><p>For this reason, a candidate who comes out for protecting social security can expect to see a hit to their campaign contributions. They also can anticipate being beaten up in both the opinion and news sections of major media outlets. While, in principle, these are supposed to be kept strictly separate, the owners and/or top management of most news outlets feel no qualms about removing this separation when it comes to social security – and using news space to attack those who defend social security.</p><p>There is also the flip side to this story. Politicians, especially <a href="http://www.guardian.co.uk/world/democrats" title="More from guardian.co.uk on Democrats">Democrats</a>, who speak up for cuts to social security can count on lavish praise from the media. Political figures of no obvious stature, like former Louisiana Senator <a href="http://www.time.com/time/magazine/article/0,9171,1000403,00.html">John Breaux</a> or former Indiana Senator <a href="http://www.ontheissues.org/Senate/Evan_Bayh.htm#Social_Security">Evan Bayh</a>, were lionized in the media for their willingness to cut social security benefits. After leaving the Senate, both took lobbying positions where they were almost certainly earning well over $1m a year.</p><p>This is the fundamental economics of social security that explains why it has not figured more prominently in the presidential race. If President Obama were to rise in defense of the program, he could count on losing the financial backing of many supporters. He would also get beaten up by the Washington Post and other major news outlets for challenging their agenda.</p><p>Such are the hard economic facts with which President Obama and other politicians must contend.</p><p> </p> Thu, 25 Oct 2012 15:50:00 -0700 Dean Baker, Comment Is Free 733556 at http://www.alternet.org Election 2016 Economy Election 2016 Labor News & Politics barack obama Candidate Position employment evan bayh financial services governor illinois investment John Breaux labor mitt romney obama pension Person Career personal finance president retirement romney senate social issues Social Security debate in the United States social security Taxation in the United States trust fund USD united states disability insurance media outlets presidential race the Washington Post Body How Many Wrong Statements Can You Find in Tom Friedman's Latest Column? http://www.alternet.org/economy/how-many-wrong-statements-can-you-find-tom-friedmans-latest-column <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">It&#039;s like a drinking game, without booze.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/thomas-friedman.jpeg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p> </p><p>It's always fun when Thomas Friedman writes a piece on economics. He likes to play a game with readers. He slips a number of false assertions into the column and readers are supposed to find them. (He probably does this with his columns on foreign policy also, but I don't have time to read through those columns.)</p><p>Today's <a href="http://www.nytimes.com/2012/10/17/opinion/friedman-how-to-score-the-debate.html" target="_blank">column</a> is just chock full of these false assertions. Early on Friedman tells us:</p><p>"many Americans understand something is very wrong, that we could go the way of Greece or Japan if we don’t shape up, and that they will embrace a candidate who trusts them with the truth, that is, an honest diagnosis of where we are and how we get out of this mess."</p><p>That was really neat, go the way of Greece or Japan? That's kind of like going the way of Bernie Madoff or Warren Buffet. Greece's economy is being systematically destroyed by the conditions imposed by the European Central Bank and the I.M.F. It's<a href="http://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=2&amp;sqi=2&amp;ved=0CCQQFjAB&amp;url=http%3A%2F%2Fwww.oecd.org%2Fstd%2Flabourstatistics%2FHUR_NR10e12.pdf&amp;ei=gKN-UOyhCYnq9ASNr4AQ&amp;usg=AFQjCNEYJHPNQIblPsoh8JD9S2NtbZixjg&amp;sig2=J7nw3PJKeYlMS7K2t-f2pg&amp;cad=rja" target="_blank">unemployment rate</a> is near 25 percent and virtually certain to go higher as virtually everyone projects at least another year of economic contraction. By contrast, the unemployment rate in Japan is just over 4.0 percent. While Greece is clearly a disaster, Japan's economy has done better in many respects than the U.S. economy over the last two decades.</p><p>His next big whopper comes one paragraph down when Friedman tells readers:</p><p>"This merger [of globalization and technology] makes old jobs obsolete faster and spins off new jobs faster, but all the good new jobs require higher skills."</p><p>This is the structural unemployment story. This one can be easily disproved because none of the facts fit. There are no major sectors of the economy with rapidly rising wages, with longer workweeks and with large numbers of job openings relative to the number of unemployed. These are all characteristics of markets with labor shortages -- the jobs requiring higher skills story that Friedman is telling. It's a cute story, there's just<a href="http://www.cepr.net/index.php/publications/reports/the-problem-with-structural-unemployment-in-the-us"> no evidence for it</a>.</p><p>It's also worth noting the other error in this assertion. Globalization eliminates the jobs we want it to eliminate. If we had negotiated trade agreements that made it easy for foreign doctors, lawyers and other professionals to work in these professions in the United States, then globalization would have led to large numbers of unemployed professionals in the United States.</p><p>Instead our trade agreements focused on putting manufacturing workers in direct competition with their low-paid counterparts in the developing world. This has eliminated millions of manufacturing jobs and put downward pressure on the wages in the jobs that remained. The decision to direct globalization on a path that hurt manufacturing workers was a policy choice, not an inevitable historical process. </p><p>His next error is a couple of paragraphs down when he said:</p><p>"our generation also overdosed on debt and credit entitlement."</p><p>Actually, there would have been nothing wrong with the levels of debt incurred if the price of the assets that provided the basis for this borrowing (stocks and housing) had not been inflated by bubbles. If Bill Gates were to borrow a million dollars the debt would be no big deal. That's because he has billions of dollars in assets. By contrast for most of us, $1 million in debt would be a disaster. The problem was not the borrowing per se, the problem was the bubble wealth. Unfortunately, major news outlets didn't have the room for warnings of the risks posed by these bubbles because they were filling their space with columns like this one from Thomas Friedman.</p><p>Friedman then notes the "hole" created by the collapse of the housing bubble then tells us:</p><p>"That hole requires us to now cut spending, raise and reform taxes; stimulate the economy by investing in infrastructure, research and teachers; spur more start-ups; and offer more people postsecondary vocational or college education."</p><p>Huh, cut spending? No, that's 180 degrees backward. The hole is the lost demand from construction and consumption due to the collapse of the housing bubble. That hole is filled by more spending.</p><p>As far as tax reform, yes we have a messed up tax code that could be improved, but we also had a messed up tax code in the quarter century following World War II when the economy experienced its strongest and longest period of sustained prosperity. In short, a better tax code is desirable, buy hardly essential.</p><p>Anyhow, I'm sure that Friedman put more errors in his piece, but that's all I have time for today. Wasn't that fun?</p> Wed, 17 Oct 2012 11:15:00 -0700 Dean Baker, CEPR 728745 at http://www.alternet.org Economy Economy News & Politics friedman economy hackery David Brooks' Debate Advice for Mitt: Say Lots of Stuff That Isn't True http://www.alternet.org/election-2012/david-brooks-debate-advice-mitt-say-lots-stuff-isnt-true <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">It&#039;s that time of year when columnists try out as speechwriters for the candidates. </div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/davidbrooks_2.jpeg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p> </p><p>It apparently is that time of year when columnists try out as speechwriters for the candidates. After Robert Samuelson tried his hand by writing speeches for both candidates in his Washington Post <a href="http://www.washingtonpost.com/opinions/robert-samuelson-the-truth-deficit-from-obama-and-romney/2012/09/30/262c4602-09a5-11e2-a10c-fa5a255a9258_story.html" target="_blank">column</a>yesterday, David Brooks took a shot in drafting a <a href="http://www.nytimes.com/2012/10/02/opinion/brooks-the-opening-statement.html?hp" target="_blank">debate intro</a> for Governor Romney today. Brooks' speech is not especially truthful, but I suppose that is par for a presidential candidate.</p><p>He tells readers:</p><p>"The next president is going to face some wicked problems. The first is the “fiscal cliff.” The next president is going to have to forge a grand compromise on the budget. President Obama has tried and failed to do this over the past four years. There’s no reason to think he’d do any better over the next four."</p><p>Actually there is no reason that the next president has to "forge a grand compromise on the budget." Budget deficits were in fact quite modest until the collapse of the housing bubble tanked the economy. If the economy were back near full employment, deficits would again be quite modest. The ratio of interest payments to GDP is near its post-war low.</p><p><img alt="interest-per-gdp-10-2012" src="http://www.cepr.net/images/stories/blogs/interest-per-gdp-10-2012.png" /></p><p>Source: Congressional Budget Office.</p><p>As Brooks' speech continues, he has Romney say:</p><p>"the nations that successfully trim debt have raised $1 in new revenue for every $3 in spending cuts."</p><p>So Brooks wants Governor Romney to assert with no basis in reality that the next president must have big budget cuts. This almost certainly means cuts to Social Security and Medicare (there ain't much else in the non-defense budget), but Brooks would not have Romney be this honest in his opening debate statement.</p><p>He then has Romney go into a diatribe about regulatory horror stories under President Obama:</p><p>"The Obama administration, which is either hostile to or aloof from business, has made a thousand tax, regulatory and spending decisions that are biased away from growth and biased toward other priorities. American competitiveness has fallen in each of the past four years, according to the World Economic Forum. Medical device makers, for example, are being chased overseas. The economy in 2012 is worse than the economy in 2011. That’s inexcusable."</p><p>Hmm, were the bailouts of Citigroup and Bank of America against business? How about the administration's green light to fracking? How about a health care plan that was based on a 90s plan from the Heritage Foundation and the health care plan that Governor Romney put in place in Massachusetts?</p><p>We now know that most U.S. corporations are managed by big cry babies who are unhappy unless they are constantly told that they are wonderful people, but as a practical matter praise or criticism of the "job creators" doesn't seem to have much economic consequence. Investment in equipment and software under our Kenyan socialist president is almost as high, measured as a share of GDP, as it was in the rein of the very business friendly George W. Bush. This is especially impressive since large segments of the economy are still suffering from substantial amounts of excess capacity.</p><p>Furthermore, we have the Brooks-Romney line that:</p><p>"Medical device makers, for example, are being chased overseas."</p><p>This makes no sense. The comment is a reference to a small tax on medical devices that is being used to help finance the Affordable Care Act. The problem with the story is that the tax applies to the devices when they are sold in the United States. This means that manufacturers will not be able to evade the tax even if they move their operations overseas. Was Romney really this clueless when he ran Bain Capital?</p><p>Okay, the statement goes on, but you get the flavor. So, should Governor Romney hire David Brooks?</p> Tue, 02 Oct 2012 06:36:00 -0700 Dean Baker, Center for Economic and Policy Research 720203 at http://www.alternet.org Election 2016 Economy Election 2016 Media News & Politics romney election 2012 deficits Poverty: The New Growth Industry in America http://www.alternet.org/economy/poverty-new-growth-industry-america <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Recent trends in poverty rates should have the country furious at its leaders.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/hands.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>Recent trends in poverty rates should have the country furious at its leaders. When we get the data for 2011 next month, we are likely to see yet another uptick in poverty rates, reversing almost 50 years of economic progress. The percentage of people in extreme poverty, with incomes less than half of the poverty level, is likely to again hit an all-time high since the data has been collected.</p><p>The situation is made even worse by the fact that so many of those in poverty are children. In 2010, 27 percent of all children in the country were reported as living below the poverty level. For African-American children, the share in poverty is approaching 40 percent.</p><p>Many will blame the welfare reform law in 1996 that passed with bipartisan support. That is appropriate. This bill involved a great deal of political grandstanding and removed guarantees that could have protected millions of families in a severe downturn like what we are now seeing.</p><p>Advocates of this bill who now profess surprise at the result need to turn to a new line of work. There were plenty of people at the time who warned that the lack of federal guarantees could lead to severe hardship in an economic downturn. No one has a right to be surprised on this one. The surge in the poverty rate in a downturn like the present one was a predictable and predicted outcome of the legislation.</p><p>However, there is the other side of the story, the overall state of the economy, which is the more important cause of the increase in the poverty rate. The vast majority of the people in this country rely on work for the bulk of their income and that would also be true for the tens of millions of people in poverty, if work was available. These people cannot find jobs in today's economy, or at least not full-time jobs that pay anything close to a living wage.</p><p>The reason why so many of these people cannot find jobs is the incredible economic mismanagement by people with names like Robert Rubin, Alan Greenspan, and Ben Bernanke. These people thought that the bubbles that drove the economy in the last two decades, the stock bubble in the '90s and the housing bubble in the last decade, were really cool. They somehow thought that either the bubbles would not burst or that it would be easy to pick up the pieces after a crash. In Robert Rubin's case, he personally profited to the tune of more than $100 million from the housing bubble after he left his post as Treasury Secretary to take a top position at Citigroup.</p><p>As much as it is important to have strong safety net protections to ensure that people are able to survive tough times, it is even more important to have a strong economy that can generate good paying jobs. Unfortunately, there is nothing on the political agenda at the moment likely to bring the economy back towards full employment any time soon.</p><p>Both presidential candidates claim to be committed to deficit reduction as though there is magical process that causes private businesses to start hiring workers when they see that schools are laying off teachers and defense contractors are laying off factory workers. Just as few politicians had the courage in 1996 to stand up and say that the welfare reform bill would jeopardize the security of millions of families, few politicians are prepared to stand up now and say that we actually need more government investment to create jobs and rebuild the economy.</p><p>The reality is that the collapse of the housing bubble created an enormous demand gap in the economy. In the short term, this gap can only be filled by the government, whether we like it or not. Until we do get the economy back on its feet, and start creating the millions of jobs that are needed, the poverty numbers will continue to be horrible. That is why the main route for fixing poverty requires fixing the economy.</p> Wed, 29 Aug 2012 12:27:00 -0700 Dean Baker, Op-Ed News 701472 at http://www.alternet.org Economy Economy Labor News & Politics poverty welfare reform economy bubble economy living wage housing bubble employment unemployment Don't Blame Technology For The Shrinking Middle Class http://www.alternet.org/story/156283/don%27t_blame_technology_for_the_shrinking_middle_class <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Some economists are arguing that high tech inevitably doomed the middle class -- but they&#039;re not telling the whole story.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/images/managed/storyimages_1342067178_3057223720cacb1744f.jpg" alt="" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>  </p> <p> Thomas Edsall devoted his <a href="http://campaignstops.blogs.nytimes.com/2012/07/08/the-future-of-joblessness/?hp" target="_blank">blog post</a> today to several economists who claim that the upward redistribution we have seen over the last three decades is a result of revolutions in technology and that it will be difficult to reverse this development. In fact, much of this economic analysis is quite sloppy and it is easy to show that many of the factors leading to upward redistribution had nothing to do with technology. </p> <p> For example, the post features a graph that shows for the first time a sustained decline in the employment-to-population ratio (EPOP) even as output has continued to rise. While the graph is accurate, it is wrong to imply that this demonstrates any new impact of technology.</p> <p> In prior decades the employment-to-population ratio was consistently rising because women were entering the labor force and because the baby boom cohorts were entering the labor market. At this point, the vast majority of working age women are already working. And, the baby boom cohorts are beginning to retire. These developments mean that the EPOP is likely to be largely stagnant or falling going forward regardless of what happens with technology. (The recent drop is due to the weak economy.)</p> <p> Much of the rest of the analysis is similarly confused. For example, the piece refers to the millions of manufacturing jobs that the United States lost over the last decade. The biggest factor behind the job loss was not technology; productivity growth in manufacturing was not markedly faster in the 2000s than in prior decades. The main factor leading to job loss was the growing U.S. trade deficit.</p> <p> This, in turn, was the result of a conscious policy decision by Robert Rubin to have an overvalued dollar. Robert Rubin's high dollar policy was put into practice with the muscle of the International Monetary Fund as it engineered the bailout from the East Asian financial crisis in 1997. As a result of the harsh terms of the bailout, developing countries decided to acquire massive amounts of reserves, which meant deliberately keeping down the value of their currencies against the dollar so as to run trade surpluses.</p> <p> The predicted result of an overvalued dollar is the loss of jobs and lower wages in the sectors of the economy that are exposed to international competition. However, the availability of low-cost imports raises the living standards of those who are protected from international competition.</p> <p> The latter group would include highly paid professionals, like doctors and lawyers. Note that it is not technology that protects these professionals from seeing their wages depressed by competition from their low-paid counterparts in the developing world, it is deliberate policy. While it has been the explicit goal of trade policy to put manufacturing workers in direct competition with workers in the developing world, the barriers that make it difficult for qualified doctors, dentists, and lawyers in the developing world to work in the United States have been left in place or strengthened.</p> <p> The economic reality has closely followed the predictions of theory. We have lost millions of manufacturing jobs due to trade, this has led to downward pressure on the wages of middle income workers more generally. If the dollar were to fall enough to bring trade into balance, it would give us close to 5 million new manufacturing jobs. That would provide a huge boost to the wages of large segments of the workforce.</p> <p> The high pay received by people at the top also has little to do with technology. Many of the top incomes are in the financial sector. Those earning these incomes are able to pocket tens of millions or hundreds of millions a year largely due to their political power. The government provides tens of billions in subsidies each year to major banks in the form of implicit "too big to fail insurance."</p> <p> It also largely turns a blind eye to massive corruption in the industry such as the mortgage fraud that took place in the housing bubble years and the LIBOR scandal now being exposed in the United Kingdom. It is unlikely that anyone will go to jail in the latter even though hundreds of millions of dollars, perhaps billions, were stolen through this fraud.</p> <p> The high pay going to top executives in the United States also has little to do with technology. Top executives of successful companies in Europe and Asia rarely pocket the tens or hundreds of millions of dollars that are standard in the United States. This is also due to institutional structures. While corporate boards put a check on abuses by top management elsewhere, here corporate boards are essentially <a href="http://www.morganstanley.com/about/ir/SECFilings/archive/proxy08/noticeandproxy.htm#tx82193_27" target="_blank">paid off</a> to allow CEO's to take what they want and not say anything. </p> <p> In short, it is easy to trace the vast majority of the upward redistribution over the last three decades to deliberate policy choices, as I argue in "The End of Loser Liberalism: Making Markets Progressive" (<a href="http://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=1&amp;ved=0CE8QFjAA&amp;url=http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism&amp;ei=M6n6T8OMMafo6wG7-ajtBg&amp;usg=AFQjCNE5iI0yev4JQOUhQ3YOj8YTuSUSlA&amp;sig2=pQ0drBvNEIbIZs0pYWb-zg">free download available</a>). It is seriously misleading to imply that this upward redistribution was just the result of technology.</p> <div>  </div> <br /><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-bio field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"> <!--smart_paging_autop_filter-->Dean Baker is co-director of the <a href="http://cepr.org">Center for Economic and Policy Research</a> and author of the new book, <a href="http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism">The End of Loser Liberalism</a>? </div></div></div> Wed, 11 Jul 2012 18:00:01 -0700 Dean Baker, Center for Economic and Policy Research 671621 at http://www.alternet.org News & Politics Corporate Accountability and WorkPlace Labor Visions technology middle class edsall Crazy -- Romney Advisor Says Spiraling Inequality Is Good for the Country http://www.alternet.org/story/155263/crazy_--_romney_advisor_says_spiraling_inequality_is_good_for_the_country <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Mitt Romney&#039;s former partner at Bain Capital has written a book that reveals much about how the super-rich think -- and it&#039;s not pretty.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/default.jpg" alt="" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>It's standard practice during the election campaign for presidential candidates to publish an autobiographical account of their rise to stardom or their philosophy of life and politics. However, in keeping with his commitment to innovative business practices, it seems that Mitt Romney has outsourced this task to Ed Conard, one of his former partners at Bain Capital.</p> <p>In fairness, it is not clear to what extent Romney shares the views of his former partner, but Conard surely understands that <a href="http://bottomline.msnbc.msn.com/_news/2012/05/02/11504858-former-bain-honcho-says-economic-inequality-is-ok?lite">his book</a> [Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong] will get attention because of his proximity to the presumptive Republican nominee. And, on the off chance that Conard does think like the man who likes to be able to fire people, this book should be taken seriously.</p> <p>There is much in this book to infuriate those who don't get their kicks from firing people. To start, Conard has a tale of the housing bubble and the ensuing crash that places all the blame on government efforts to promote homeownership.</p> <p>Making this case requires serious abuse of the facts. In arguing that the banks did not know that they were passing along fraudulent mortgages, Conard asks why they would hold so many mortgages on their own books if they knew they were trash. The obvious answer is that they couldn't sell them. This was the whole point of the collaterized debt obligations and later the second generation collaterized debt obligations. The goal was to hide the garbage.</p> <p>This was like a game of musical chairs. At some point the music stops and someone is left holding the trash. It wasn't by choice that Lehman, Citigroup, and the rest were still holding tens or hundreds of billions of dollars of junk mortgages in 2008. They just couldn't find enough suckers.</p> <p>Conard is no more successful in trying to turn reality on its head and make Fannie and Freddie the main promulgators of junk mortgages in the peak years of the bubble. He cites <a href="http://www.fhfa.gov/Default.aspx?Page=313">data</a>that show the exact opposite. The vast majority of the junk mortgages were securitized by Citigroup, Morgan Stanley and the other investment banks.</p> <p>Conard is either being dishonest with his readers here or has some serious cognitive problems.</p> <p>Another novel feature of Conard's book is his contention that there have been substantial gains in wages over the last three decades. The fact that wages for most workers have barely outpaced inflation has been well documented (see <a href="http://www.cepr.net/index.php?option=com_content&amp;view=article&amp;id=1352" target="_hplink" style="padding: 0px; margin: 0px; border-width: 0px; outline-width: 0px; font-size: 13px; vertical-align: baseline; color: rgb(15, 102, 145); text-decoration: none; font-family: Arial;">here</a><span style="color: rgb(68, 68, 68); font-family: Arial; font-size: 13px;"> and </span><a href="http://www.google.com/url?sa=D&amp;q=http://www.epi.org/blog/understanding-wedge-productivity-median-compensation/&amp;usg=AFQjCNGYf9NqZu0CQTSGFT4N7dPVQAlSEQ" target="_hplink" style="padding: 0px; margin: 0px; border-width: 0px; outline-width: 0px; font-size: 13px; vertical-align: baseline; color: rgb(15, 102, 145); text-decoration: none; font-family: Arial;">here</a><span style="color: rgb(68, 68, 68); font-family: Arial; font-size: 13px;"> for example)</span>. Conard does a neat two-step around this basic fact by showing substantial wage gains for African American men and women and white men and women.</p> <p>There are some problems with his numbers, but the implication is that as our labor force gets less white and more female we should expect wages to fall. In other words, if the wage distribution was exactly the same, but we replaced all the white men with African American women, then Conard would be touting huge wage gains for the workforce. It's great to see groups that have been the victims of discrimination making progress (in reality, the gains <a href="http://stateofworkingamerica.org/demographics/race-ethnicity/">have not been much</a>), but this does not substitute for economy-wide wage growth.</p> <p>But the real meat of Conard's piece is the glorification of those who have gotten incredibly rich, like him. Conard's celebration of the rich and his airbrushing of what they did to get there is sufficiently out of touch with reality to be scary.</p> <p>Did Conard really miss the story of Fabrice Tourre (a.k.a. "Fabulous Fab") the Goldman Sachs mortgage trader who put together collaterized debt obligations that were designed to fail and then hawked them off on unsuspecting clients? Does he not know about the flash traders who make fortunes by designing sophisticated programs that allow them to front-run major trades? (This means that they can detect major trades and jump in ahead, thereby capturing some of the profit.)</p> <p>How about the clever character who invented "dead peasant" insurance policies? These are insurance policies that corporations buy on their line workers, usually without their knowledge, making the company the beneficiary. The purpose is to allow the company to time its earnings and minimize its tax obligations.</p> <p>The financial sector is chock full of people who have made great fortunes on gimmicks that have no obvious social value but allow their inventors to gain at the expense of others. And, the financial sector is not the only place where the big money often comes from economic rents rather than genuine innovations.</p> <p>Does anyone who has ever used a Microsoft product think that Bill Gates became the world's richest person because of the quality of the software he produces? Microsoft gained its preeminence because of Bill Gates' sharp elbows. Clearly Gates is a highly motivated and intelligent person, but society did not benefit from his success at propelling his inferior software to market dominance.</p> <p>How much has the pharmaceutical industry profited from using its political power to get Congress to give it ever longer and stronger patent monopolies? We now spend almost $300 billion a year on prescription drugs that would cost us around $30 billion in a free market. The $270 billion a year difference is about five times the size of the Bush tax cuts to wealthy.</p> <p>There is no problem identifying other sectors of the economy where the big bucks are gained through rent-seeking and manipulation of the political process. (This is the topic of my free book, <a href="http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism">The End of Loser Liberalism: Making Markets Progressive.)</a> In fact, Conard and Romney's own industry provides an excellent example of using political power to promote private wealth.</p> <p>One of the major ways that private equity companies make money is by taking advantage of the tax deductibility of interest. Private equity companies typically load the firms they buy with as much debt as possible. This is because the interest payments on debt are tax deductible and they don't really care if the company ends up going bankrupt. They expect a substantial portion of their firms to go into bankruptcy.</p> <p>The result is that much of the profits pocketed by Conard and Romney are simply the lower taxes due to the fact that interest payments are tax deductible for corporations, whereas dividend payments are not. But this is not their only gaming of the system.</p> <p>Both Conard and Romney were in a position to pocket tens of millions of dollars from the hedge fund managers' subsidy, also known as the carried interest tax deduction. This tax break allows incredibly wealthy people like Conard and Romney to pay only the 15 percent capital gains tax on the bulk of their earnings. Essentially, the argument is that because they are paid on a commission, like realtors and shoe sales people, hedge and private equity fund managers should have their earnings treated as capital gains. This argument has no obvious logic, but the beneficiaries have enormous political power, which explains why the special treatment of carried interest survives.</p> <p>In short, Conard portrays a fantasy world. We are not fighting over capitalism versus socialism. The battle is over the crony capitalism of which both he and Romney have been major beneficiaries. We'll leave it to his shrink to determine whether the problem is that Conard is deluded or dishonest, but the rest of us should view this book as a serious warning about the world view of his business partner.</p> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-bio field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"> <!--smart_paging_autop_filter-->Dean Baker is co-director of the <a href="http://cepr.org">Center for Economic and Policy Research</a> and author of the new book, <a href="http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism">The End of Loser Liberalism</a>? </div></div></div> Thu, 03 May 2012 08:00:01 -0700 Dean Baker, AlterNet 670635 at http://www.alternet.org Economy News & Politics Election 2016 Economy mitt romney housing bubble financial crash 1% bain capital edward conrad We're Number ... 2? Are Americans in Denial About the Country's Decline? http://www.alternet.org/story/155237/we%27re_number_..._2_are_americans_in_denial_about_the_country%27s_decline <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">China is rapidly passing us by. But Americans - and their leaders - refuse to come to terms with what this means for our future.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/images/managed/storyimages_1336341800_screenshot20120506at6.02.28pm.png" alt="" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>Politicians in the United States must ritualistically assert that the United States is and always will be the world's leading economic, military and political power. This chant may help win elections in a country where respectable people deny global warming and evolution, but it has nothing to do with the real world.</p> <p>Those familiar with the data know that China is rapidly gaining on the United States as the world’s leading economic power. According to data from the <a href="http://www.imf.org/external/pubs/ft/weo/2011/02/weodata/weorept.aspx?pr.x=70&amp;pr.y=4&amp;sy=2009&amp;ey=2016&amp;scsm=1&amp;ssd=1&amp;sort=country&amp;ds=.&amp;br=1&amp;c=924,111&amp;s=PPPGDP&amp;grp=0&amp;a=">International Monetary Fund</a> (IMF), China’s economy is currently about 80 percent of the size of the U.S. economy. It is projected to pass the United States by 2016.</p> <p>However, there is a considerable degree of uncertainty about these numbers. It is difficult to accurately compare the output of countries with very different economies. By many measures China is already well ahead of the United States.</p> <p>It passed the U.S. as the world’s biggest car market in 2009. In most categories of industrial production it is far ahead of the United States and it is a far bigger exporter of goods and services. The number of people graduating college each year with degrees in science and engineering far exceeds the number in the United States. And China has nearly twice as many cell phone and Internet users as the United States.</p> <p>China still has close to half of its population living in the countryside. The living standard of the 650 million people living in rural areas is much lower than in urban areas and also much more difficult to measure. The main reason that living standards are difficult to gauge is that prices are much lower in rural areas.</p> <p>A <a href="http://www.nber.org/papers/w17729">new study</a> that carefully examined China’s prices and consumption patterns concluded that it is far wealthier than the widely used data indicate. According to this study, China’s economy may already be as much as 20 percent larger than the U.S. economy. Furthermore, even if its growth rate slows to the 7.0 percent annual rate that many now expect, China’s economy may be close to twice the size of the U.S. economy in the span of a decade.</p> <p>This raises all sorts of interesting questions about the future of the U.S. and China in international relations. Regardless of whether or not China’s economy is bigger than the U.S. economy, it clearly does not exercise anywhere near as much influence internationally. China’s leaders have been content to let the U.S. continue to play the leading role in international bodies and in dealing with international conflicts, intervening only where it felt important interests were threatened.</p> <p>This pattern should not be surprising since the United States was slow to assert itself internationally, even though by every measure it was the world’s pre-eminent power following World War I. The result was that for the next quarter century, the United Kingdom ended up imagining itself to be far more important to the world than it actually was. Perhaps the United States is doomed to play a similar role.</p> <p>The growing power and influence of China will have both positive and negative aspects. On the negative side, democracy in the United States, even with the corrupting impact of money on politics and the abuses of freedom carried out in the name of the War on Terrorism, still presents a better political model than one-party rule in China.</p> <p>Fortunately, China has shown no interest in trying to impose its political system elsewhere. For this reason the ascendency of China may not pose a threat to the spread of democracy elsewhere. (Of course, in spite of its ideals, the United States has hardly been a consistent supporter of democracy in other countries.)</p> <p>The growing power of China has already increased the options available to many countries in the developing world. Since China can provide far greater amounts of capital than the IMF, World Bank, and other U.S.-dominated institutions, it provides developing countries with an important alternative. They need not adopt policies to appease these institutions to weather economic storms.</p> <p>One area in which China’s policy can have an enormous impact is intellectual property. The rules on patents and copyrights that the United States has sought to impose on the rest of the world are incredibly wasteful. This is most apparent in prescription drugs, where patent monopolies allow companies to charge hundreds or even thousands of dollars for drugs that would sell for $5-$10 in a free market.</p> <p>Not only do patents make cheap drugs incredibly expensive, they also lead to bad medicine, as huge patent rents encourage drug companies to lie and cheat to sell more of their drugs. It’s rare that a month passes when we do not hear of a scandal where a drug company concealed information about the safety or effectiveness of its drugs.</p> <p>Of course the problems with the U.S. system of intellectual property go well beyond drug patents. Patents in high tech are primarily about harassing competitors. The difficulty of enforcing copyrights in the Internet Age has led to absurdities like the Stop Online Piracy Act.</p> <p>China does not itself enforce intellectual property with the same vigor as the United States. Rather than following the United States blindly and impose the same sort of archaic and inefficient system domestically, China could do the world an enormous service if it would promote alternative mechanisms for supporting <a href="http://www.cepr.net/index.php/publications/reports/financing-drug-research-what-are-the-issues/">research</a> and creative.</p> <p>It’s clear that the rise of China will lead to many changes around the world. Political leaders in the United States will no doubt catch up with the reality of the new U.S. position in the world – probably about the time that they accept global warming and evolution.</p> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-bio field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"> <!--smart_paging_autop_filter-->Dean Baker is co-director of the <a href="http://cepr.org">Center for Economic and Policy Research</a> and author of the new book, <a href="http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism">The End of Loser Liberalism</a>? </div></div></div> Tue, 01 May 2012 10:00:01 -0700 Dean Baker, Nation of Change 670649 at http://www.alternet.org Visions World Visions Economy china economic policy Keep Getting Paid for Fewer Hours? How a Provision Congress Just Passed Could Help Rebuild the Economy http://www.alternet.org/story/154324/keep_getting_paid_for_fewer_hours_how_a_provision_congress_just_passed_could_help_rebuild_the_economy <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Tucked in the small print of the payroll tax bill is a work-sharing plan that could save more than a million jobs this year.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/default.jpg" alt="" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>One of the little-noticed items attached to the extension of the payroll tax cut was a <a href="http://news.providencejournal.com/breaking-news/2012/02/us-payroll-tax.html">provision that would promote work-sharing</a> as part of state unemployment insurance systems. The provision, which is based on a bill introduced in the Senate by Jack Reed and in the House by Rosa DeLauro, would reimburse states for money spent on work-sharing programs that are part of their unemployment insurance system. It would also provide funds for the states that do not currently have work-sharing systems to establish them.</p> <p>This provision is a rare victory of bipartisanship and commonsense. The basic logic of work-sharing is straightforward. Under the current system of unemployment insurance, workers who lose their jobs can get roughly half of their pay in benefits. However, if a worker has their hours cut back because of inadequate demand, they don't get in any way compensated for the lost pay. This effectively encourages employers to go the route of layoffs, rather than shortening work hours, since that is the only way that workers can benefit from unemployment insurance.</p> <p>Work-sharing gets around this asymmetry. It allows workers to be compensated for part of their lost pay when their employer reduces their work hours. This means that if an employer decides to reduce the work hours of 50 workers by 20%, as opposed to laying off 10 workers, the 50 workers can get half of their lost pay (10% of their total pay) covered by unemployment insurance. This means that workers will end up working 20% fewer hours for roughly 10% less pay.</p> <p>This is an outcome that is likely to better for workers, employers, and the economy as a whole. It is better for workers because it keeps them on the job and in a situation where they can be continually upgrading their skills in accordance with changes in the workplace.</p> <p>By contrast, workers who are unemployed for long periods of time have great difficulty getting re-employed. Employers are reluctant to hire workers who have been out of the workforce for one to two years or longer. Unfortunately, a large number of workers now fall into this category.</p> <p>Work-sharing can also be beneficial to employers as many firms that have gone this route have discovered. By keeping workers on the job these firms are able to ramp up production quickly to meet new demand. If they had gone the layoff route, they would be forced to go through a costly and time-consuming process of hiring and training new workers. The <a href="http://www.cepr.net/calculators/turnover_calc.html">expense associated with employee turnover can be considerable</a>, even for the least skilled positions.</p> <p>Finally, the work-sharing route is by far the better route from the standpoint of the economy and society. It is a personal disaster for workers who end up permanently shut out from the labor force, but it also an enormous loss to the economy and society. We want to take to be able to use the skills that people have developed over a working lifetime, not throw them in the garbage.</p> <p>And, needless to say, the family of a worker who is unable to find unemployment will also suffer considerable hardship. It is much more difficult to raise children in a situation where a primary breadwinner suffers through a long period of unemployment.</p> <p>The provision in the tax bill will go far towards promoting the increased use of work-sharing, but there is still a long way to go. At the moment, there are less than 50,000 workers nationwide on work sharing programs. The extent to which this number increases will depend on efforts by states to promote the program and also <a href="http://www.cepr.net/index.php?option=com_content&amp;id=5353&amp;view=article">their willingness to allow employers flexibility in its use</a>.</p> <p>The potential impact of work-sharing on unemployment is enormous. While the economy as a whole is adding jobs, we still have an enormously high level of churn every month: roughly 4 million workers leave their jobs, with 2 million leaving involuntarily. If the number of people being laid off can be reduced by 5%, this would be equivalent to adding 100,000 additional jobs each month, which translates to 1.2m by the end of a year.</p> <p>Work-sharing has been used successfully elsewhere. <a title="More from guardian.co.uk on Germany" href="http://www.guardian.co.uk/world/germany">Germany</a>'s unemployment is 1.5 percentage points lower today than it was at the start of its recession. This is not due to Germany's growth performance, which actually has been somewhat worse than the US. Rather, the difference is that Germany has been successful in persuading employers to keep workers on the job, even when this has meant a shortening of hours.</p> <p>We might not have the same success with work-sharing as Germany, but if we can generate 1-2m additional jobs by promoting shorter hours, this would be a really big deal. The bill passed by Congress and <a href="http://articles.cnn.com/2012-02-22/politics/politics_obama-payroll-tax_1_tax-rate-corporate-tax-unemployment-benefits?_s=PM:POLITICS">signed by President Obama last week</a> is a big step in this direction.</p> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-bio field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"> <!--smart_paging_autop_filter-->Dean Baker is co-director of the <a href="http://cepr.org">Center for Economic and Policy Research</a> and author of the new book, <a href="http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism">The End of Loser Liberalism</a>? </div></div></div> Sun, 04 Mar 2012 02:00:01 -0800 Dean Baker, Comment Is Free 669769 at http://www.alternet.org News & Politics News & Politics Labor Economy labor economy obama workers germany working jobs unemployment unemployed payroll worksharing work-sharing Why the GOP Is Trying to Pin High Gas Prices on Obama (and Gullible Americans Are Falling for It) http://www.alternet.org/story/154318/why_the_gop_is_trying_to_pin_high_gas_prices_on_obama_%28and_gullible_americans_are_falling_for_it%29 <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">The Republicans are hoping to blame this rise in the price of gas on Obama&#039;s environmentally friendly policies. But here are two major problems with their story.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/default.jpg" alt="" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>President Obama seems to be enjoying some good luck in that the economy appears to be picking up just in time for his re-election campaign. While the economy is still weak by almost any measure, growth is likely to be in the 2.5-3.0 percent range for 2012. This should lead to the creation of close to two million jobs and a modest drop in the unemployment rate.</p> <p>That is not much to cheer about in an economy that is still down close to ten million jobs from its trend level, however compared to the recent past, this is good news. And research shows that voters tend to focus primarily on the direction of change. This means that if the unemployment rate is falling and the economy is creating jobs at a respectable pace throughout the year, President Obama stands a very good chance of being re-elected in November.</p> <p>This explains the decision of the Republican Party to focus on the price of gas. The price of gas has long played a pivotal role in US politics. High gas prices will be forever a symbol of the economic malaise of the Carter presidency in the late '70s. The drop in gas prices under President Reagan was associated with a resurgence of America's political and economic power.</p> <p>The fact that both the rise in the price of oil in the '70s and the subsequent decline in the '80s had little to do with domestic policy decisions and much more with international politics (e.g. the Iranian revolution in 1979) mattered little. President Carter got the blame for events beyond his control and President Reagan got the credit.</p> <p>The Republicans are hoping to benefit from this pattern again in the fall election. Gas prices had plummeted following the economic collapse in 2008, falling as low as $2.00 a gallon, half of their pre-recession peak. However, in the last two years, they have been on the rise as the world economy recovers and instability in the Middle East and the possibility of a war with Iran threaten the oil supply from the region. Gas prices are almost certain to soar past $4.00 a gallon in the peak summer driving season.</p> <p>The Republicans are hoping to blame this rise in the price of gas on President Obama's environmentally friendly policies. As a matter of logic, there are two basic problems in this story.</p> <p>First, President Obama's policies have not been especially friendly to the environment. He has opened up large portions of previously protected coastal areas to drilling. Oil production has risen substantially in his three years in office and is now back near the peaks reach in 2002. While some areas do remain protected, even if every last piece of land and coastline had been opened to drilling on his first day in office, it would not have increased production much beyond current levels.</p> <p>The other problem with the Republican complaints is that production in the United States really does not matter much for the price of gas. Oil prices in the United States depend on the world market, not just supply and demand in the United States.</p> <p>US production is roughly eight million barrels a day, it accounts for less than 9 percent of a worldwide market that is close to 90 million barrels a day. Even if US production could be increased by a third (an almost impossible increase) it would only increase world supply by 3 percent. This would lower the price of oil by 7-8 percent. This is not trivial, but it is not the difference between $2-a-gallon gas and $4-a-gallon gas. In other words, there is nothing that the United States can do in terms of its domestic production that would bring gas prices down to the levels that would make many American car owners happy.</p> <p>The other part of this story is that US proven reserves are in the neighborhood of 20 million barrels. After that, absent major new discoveries, production will plummet. At our current rate of production, we would exhaust them in around ten years. If we could somehow increase production by a third that would bring the date of exhaustion to just seven years in the future. This would mean that we would be seeing sharply lower production levels before the end of President Drill Everywhere's second term.</p> <p>That is the arithmetic of the situation, but the Republicans are betting that they can get away with their story nonetheless. The public is almost completely ignorant of the dynamics of world oil markets. It is widely believed that prices are determined domestically and that if upscale environmentalists did not get in the way, we could drill out enough oil so that gas prices would be cheap again.</p> <p>Since the media consider it to be their job to report what candidates say and not access its accuracy, it is likely that the public will go the polls believing that we can again get cheap gas if we just destroyed the environment. The reality is that we have the ability to do the latter.</p> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-bio field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"> <!--smart_paging_autop_filter-->Dean Baker is co-director of the <a href="http://cepr.org">Center for Economic and Policy Research</a> and author of the new book, <a href="http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism">The End of Loser Liberalism</a>? </div></div></div> Mon, 27 Feb 2012 11:00:01 -0800 Dean Baker, TruthOut.org 669691 at http://www.alternet.org Economy News & Politics Environment Election 2016 Economy environment gop gas obama fuel election2012 Does Obama Deserve Credit for Avoiding the Second Great Depression? http://www.alternet.org/story/154229/does_obama_deserve_credit_for_avoiding_the_second_great_depression <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">The Obama Administration, working with Ben Bernanke at the Fed, deserves credit for preventing a financial meltdown. But a second Great Depression was never in the cards.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/default.jpg" alt="" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p><font size="-1"><font size="-1">As President Obama’s re-election campaign heats up, there are several new accounts of his track record finding their way into print. One item for which he is undeservedly given credit is saving the country from a second Great Depression.</font></font></p> <p><font size="-1">The political elites believe in the salvation from the second Great Depression myth with the same fervency as little kids believe in Santa Claus. And, it has just as much grounding in reality.</font></p> <p><font size="-1">While the Obama Administration, working alongside Ben Bernanke at the Fed, deserves credit for preventing a financial meltdown, a second Great Depression was never in the cards. The first Great Depression was brought about not only from misguided policies at the onset of the financial crisis, but also from an inadequate policy response.</font></p> <p><font size="-1">The spending associated with World War II ultimately got us out of the depression. There is nothing magical about spending on war; spending of the same magnitude on road, schools, hospitals or anything else also would have lifted out the economy out of the depression at any point after the initial collapse in 1929-1930.</font></p> <p><font size="-1">The problem was the lack of the political will to spend in these areas, whereas there was plenty of political support for fighting the war after the attack at Pearl Harbor. The lesson from this period is that the United States could have gotten out of the Great Depression any time it was prepared to spend the money to do so. This means that a financial meltdown could not have possibly condemned us to a decade of double-digit unemployment, since that would require a decade of ongoing policy failures after the original collapse.</font></p> <p><font size="-1">All this should be obvious to anyone familiar with the history of the depression, however, we don’t have to go back 70 years for lessons on recovering from financial crises; we just have to look to the south. In December of 2001 Argentina broke the link between its currency and the dollar and defaulted on its debt. The result was a financial meltdown that was certainly at least as severe as the worst-case scenarios that the United States might have faced in the dire days after the collapse of Lehman.</font></p> <p><font size="-1">Following this default, Argentina’s economy went into a freefall for roughly three months. Banks were insolvent, families and businesses could not get access to their savings, and normal business-dealing became almost impossible.</font></p> <p><font size="-1">However, by the second quarter of 2002, the government had largely pasted things together to the point that the economy had stabilized. It began growing rapidly in the third quarter of 2002 and continued to grow rapidly until the world recession slowed the economy in 2008. By the middle of 2003, it had recovered all the ground it had lost in the initial crisis after the default.</font></p> <p><font size="-1">Based on the experience of Argentina, we can say that in the case of a full meltdown, we might have seen three months of freefall (even worse that we actually experienced from September of 2008 to April of 2009), followed by three months of stability and then a return to growth six months out. Of course it’s possible that our policy crew of Ben Bernanke, Larry Summers, and Timothy Geithner may not be as competent as the team in Argentina, but even if we double the time periods, we get six months of freefall and three years to get back to pre-crisis levels of output. That’s bad news for sure, but quite a bit short of anything that could merit the title of a “Great Depression.”</font></p> <p><font size="-1">The attack on the second Great Depression myth is not simply an exercise in semantics. The Obama Administration and the political establishment more generally want the public to be grateful that we managed to avoid a second Great Depression. People should realize that this claim is sort of like keeping our kids safe from tiger attacks. It’s true that almost no kids in the United States are ever attacked by tigers, but we don’t typically give out political praise for this fact, since there is no reason to expect our kids to be attacked by tigers.</font></p> <p><font size="-1">In the same vein, we all should be very happy we aren’t in the middle of a second Great Depression; however, there was never any good reason for us to fear a second Great Depression. What we most had to fear was a prolonged period of weak growth and high unemployment. Unfortunately, this is exactly what we are seeing. The only question is how long it will drag on.</font></p> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-bio field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"> <!--smart_paging_autop_filter-->Dean Baker is co-director of the <a href="http://cepr.org">Center for Economic and Policy Research</a> and author of the new book, <a href="http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism">The End of Loser Liberalism</a>? </div></div></div> Tue, 21 Feb 2012 03:00:01 -0800 Dean Baker, The Guardian 669600 at http://www.alternet.org Economy Economy obama great depression financial crisis The Stop Online Piracy Act is Class War in Cyberspace, Enriching the 1% at the Expense of the 99% http://www.alternet.org/story/153319/the_stop_online_piracy_act_is_class_war_in_cyberspace%2C_enriching_the_1_at_the_expense_of_the_99 <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">SOPA would require every web site in the country to become unpaid copyright enforcement officers for Time Warner, Disney and The Washington Post, among others.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/default.jpg" alt="" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>The One Percent and their employees are masters of word play. They turned the estate tax into the "death tax," life-saving health and environmental rules became "job-killing" regulations and, of course, when it comes to taxes, the richest of the rich are now "job creators" who are supposed to be exempt from paying taxes. </p> <p>Given this track record, it is hardly surprising that a bill that would require every web site in the country to become unpaid copyright enforcement officers for Time Warner, Disney and The Washington Post comes packaged as the "Stop Online Piracy Act." While the name may lead the public to believe that Congress is trying to keep our email pure and our computer screens safe, the real story is that the One Percent are again trying to rig the rules so that they get as many dollars as possible from the rest of us.</p> <p>The Stop Online Piracy Act (SOPA) would place an enormous burden not just on Internet giants like Google and Facebook, but any web site that allows people to post content or includes links to other sites. An owner of copyrighted material would be able to go the Justice Department and claim infringement and request that the whole site be <a target="_blank" href="http://www.netcoalition.com/new/horror-show-hollywood-vs-silicon-valley/">taken down</a>.</p> <p>While sites are already required to remove material that is determined to be infringing under the Digital Millennium Copyright Act, the SOPA requires that sites in effect pre-emptively screen material for potential infringements. If they fail, they risk having their whole site taken down for a period of time, in addition to paying damages to copyright holders.</p> <p>The question that serious people would ask is what problem is the SOPA intended to address? There is still plenty of money being made by online distributors of music, movies, books and software. The problem seen by the top executives at Disney and the other promoters of the SOPA is that they want to make more.</p> <p>A substantial amount of copyright-protected material does slip through the system, as does an even larger amount of material with ambiguous copyright status such as a homemade video with parts of a copyrighted song or material whose copyright may have expired. The big entertainment companies want to impose large costs on web intermediaries (which will be passed on to consumers) and make it more difficult for people to gain access to totally open material, in order to make them pay more money for their copyright-protected material.</p> <p>Although the SOPA strategy of reducing access while raising prices could fit the dictionary definition of "job-killing regulation," its advocates have the incredible audacity to be touting the 19 million jobs at stake. People really should take a moment to look at the industry's web site to see what might well rank as the most outrageous misrepresentation of economic reality ever to appear in a Washington <a target="_blank" href="http://www.fightonlinetheft.com/sites/default/files/file/Resources/Rogue%20Site%20Letter%20Multi-Industry%202_15_2011.pdf">policy debate</a>.</p> <p>The basic story is that if an industry is in any way directly or indirectly dependent on the output of a copyright protected industry, then the jobs in that industry will be put at risk if Congress doesn't approve the SOPA. By this methodology, all the jobs in the shipping industry will be at risk if we end the tax credit for solar power, since some of the materials used in solar panels are imported. This is patently absurd, but if you work for the One Percent, you can get such arguments taken seriously in Washington policy circles.</p> <p>In reality, the higher costs that the SOPA will impose on consumers both directly and indirectly by raising costs to intermediaries, are money out of their pocket. The additional money that will be collected by the entertainment industry is money that will not be spent in local stores or restaurants.</p> <p>It's true that some of the money earned by the entertainment industry will get back to writers, musicians, and other creative workers, but this will be a very small amount compared to the additional cost to consumers. If we had forward-thinking politicians in Washington, or economists who didn't sell their services to the highest bidder, policy would be focused on devising more efficient mechanisms for supporting creative work.</p> <p>Copyright is an incredibly inefficient mechanism dating back from the 16th century. The costs of enforcement are soaring as the Internet makes it ever more difficult. This is a situation where we are relying on toll booths to pay for our roads, but it is becoming ever easier for travelers to evade the toll booths. Rather than looking for alternative ways to finance road construction, we are building bigger, more expensive toll booths and increasing the penalties for not paying tolls.</p> <p>Of course, the point is to have money going to the road builders, not the people who run toll booths. There are alternative mechanisms for financing creative work. There is already a vast amount of creative and intellectual work that is not supported by copyrights. This includes work done by university faculty, work supported by nonprofit organizations and, even to some extent, work supported by the government.</p> <p>We should be looking to expand and improve these <a target="_blank" href="http://www.cepr.net/index.php/publications/reports/the-artistic-freedom-voucher-internet-age-alternative-to-copyrights/">alternative mechanisms</a> rather than turn cyberspace into a copyright-protected police state. The SOPA is big government at its worst: an intrusion into the market to help the One Percent at the expense of everyone else.</p> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-bio field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"> <!--smart_paging_autop_filter-->Dean Baker is co-director of the <a href="http://cepr.org">Center for Economic and Policy Research</a> and author of the new book, <a href="http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism">The End of Loser Liberalism</a>? </div></div></div> Mon, 05 Dec 2011 20:00:01 -0800 Dean Baker, TruthOut.org 668699 at http://www.alternet.org News & Politics News & Politics Media Civil Liberties internet economy web copyright jobs entertainment piracy traffic sopa How Conservatives Exploit the Myth of "Wealthy Elderly" to Justify Gutting Social Security http://www.alternet.org/story/153079/how_conservatives_exploit_the_myth_of_%22wealthy_elderly%22_to_justify_gutting_social_security <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Right-wingers somehow think that seniors with incomes under $30,000 a year must sacrifice to balance the budget.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/default.jpg" alt="" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>The austerity gang seeking cuts to Social Security and Medicare has been vigorously promoting the myth that the elderly are an especially affluent and privileged group. Their argument is that because of their relative affluence, cuts to the programs upon which they depend is a simple matter of fairness. There were two reports released last week that call this view into question.</p> <p>The first was a report from the Census Bureau that used a new experimental poverty index. This index differed from the official measure in several ways; most importantly it includes the value of government non-cash benefits, like food stamps. It also adjusts for differences in costs by area and takes account of differences in health spending by age.</p> <p>While this new measures showed a slightly higher overall poverty rate the most striking difference between the new measure and the official measure was the rise in the poverty rate among the elderly. Using the official measure, the poverty rate for the elderly is somewhat lower than for the adult population as a whole, 9 percent for the elderly compared with 14 percent for the non-elderly adult population. However with the new measure, the poverty rate for the elderly jumps to 14 percent, compared with 13 percent for non-elderly adults.</p> <p>By this higher measure, we have not been nearly as successful in reducing poverty among the elderly as we had believed. While Social Security has done much to ensure retirees an income above the poverty line, the rising cost of health care expenses not covered by Medicare has been an important force operating in the opposite direction.</p> <p>The other report suggests that this situation could get worse in the years ahead. The Pew Research Center released a study on wealth by age cohort. While many observers (including me) focused on the change in wealth over the last 25 years, what is perhaps more striking about this study are the levels of wealth it reported.</p> <p>The report showed that the median wealth for a household over age 65 is $170,500. This measure includes everything that they own, including equity in their home. With the median house selling for roughly $170,000, this study implies that the typical household over age 65 would essentially have enough money to pay off their mortgage. They would then have nothing else to live on except their Social Security.</p> <p>The situation looks even worse for the near elderly: the cohorts between the ages of 55 to 64. (Wealth typically peaks in these years, so these people are unlikely to have more wealth when they cross age 65.) The median wealth for this group was reported as $162,000. Using the Pew findings, the typical household in the 55 to 64 year old cohort would fall 5 percent short of the money needed to pay off the mortgage on the median home.</p> <p>Alternatively, if they were to use this wealth to buy an annuity at age 65, it would be sufficient to get them an annuity of roughly $10,000 a year or just over $800 a month. This would supplement Social Security income that comes to less than $1,200 a month for a typical worker. The monthly premium for Medicare Part B is $100, which would leave $1,100 from a monthly Social Security check for a typical retiree.</p> <p>Note that this calculation assumes that they have no equity in their home so they would either being paying rent or still paying off a mortgage out of this money. It is also worth remembering that the Medicare premium is projected to rise considerably more than the cost of living each year. This means that as retirees age, rising Medicare premiums will be reducing the buying power of their Social Security check each year. And this is the median; half of all seniors will have less income than this to support themselves.</p> <p>This is the group that the Very Serious People in Washington want to target for their deficit reduction. While the Very Serious People debate whether people who earn $250,000 a year are actually rich when it comes to restoring the tax rates of the 1990s, they somehow think that seniors with incomes under $30,000 a year must sacrifice to balance the budget. There is a logic here, but it ain't pretty.  </p><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-bio field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"> <!--smart_paging_autop_filter-->Dean Baker is co-director of the <a href="http://cepr.org">Center for Economic and Policy Research</a> and author of the new book, <a href="http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism">The End of Loser Liberalism</a>? </div></div></div> Tue, 15 Nov 2011 10:00:01 -0800 Dean Baker, AlterNet 668482 at http://www.alternet.org News & Politics wealth seniors elderly Stealing from Social Security Is NOT a Debt Solution -- Why Do the Media Promote This Dangerous Myth? http://www.alternet.org/story/151601/stealing_from_social_security_is_not_a_debt_solution_--_why_do_the_media_promote_this_dangerous_myth <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Pursuing a plan to kill social security, politicians are relying on a credulous public and compliant media to ramp up debt panic.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/default.jpg" alt="" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>The conventional wisdom among the current generation of school reformers is that bad teachers are to blame for the failure of many of our children to learn. Applying this logic to the current debates over the budget and the economy, we should be pointing a big finger of blame at the media.</p> <div id="content"><div id="article-wrapper" data-global-auto-refresh-switch="on"><div id="article-body-blocks"><p>As survey after survey shows, the vast majority of the public are incredibly ignorant of the most basic facts about the budget and the economy. If we treated their teachers in the media the way the educational reformers treat public school teachers, few economics and budget reporters would have jobs.</p> <p>One needs only to pick up a newspaper or turn on the television to get examples of thoroughly awful reporting. When we hear pledges to <a href="http://www.cbsnews.com/8301-503544_162-20078374-503544.html">reduce the projected deficits over the next 12 years by $2tn or $4tn</a>, how many people have any clue how large these reductions – on which the current debt ceiling talks between President Obama and House speaker <a title="More from guardian.co.uk on John Boehner" href="http://www.guardian.co.uk/world/john-boehner">John Boehner</a> turn – are, relative to projected spending or projected GDP over this period? (The $4tn figure is 8.7% of projected spending and 3.7% of GDP.)</p> <p>How about that $14.3tn figure for the debt ceiling? That's a really big number, really scary. So is just about every number connected with the <a title="More from guardian.co.uk on United States" href="http://www.guardian.co.uk/world/usa">United States</a> budget. We are a huge country with a huge economy. Competent reporters would focus on this being about 90% of US GDP.</p> <p>Is that big? Well, the debt to GDP ratio was over 110% after the second world war. The United Kingdom had debt to GDP ratios of more than 100% for much of the 19th century, as it was establishing itself as the world's pre-eminent industrial power. Japan has a debt to GDP ratio of more than 220% of GDP and can still borrow in financial markets long-term at interest rates of less than 1.5%.</p> <p>So, what's the problem? The politicians who want to cut social security and Medicare obviously want the public to believe that there is a huge problem and – due to the incompetence of the media – they have managed to instill fear throughout the nation about this massive non-problem.</p> <p>If the media were doing their job, the public would be able to put these debt numbers in context. And the politicians who attempted to exploit fears based on ignorance would be subjected to ridicule. For example, when Senator <a title="More from guardian.co.uk on John McCain" href="http://www.guardian.co.uk/world/johnmccain">John McCain</a> was basing <a href="http://mediamatters.org/research/200801170008">his 2008 president campaign on attacking the $1m spent on creating a Woodstock museum</a>, competent reporters would have barraged him with questions as to whether McCain understood that this came to 0.00003% of federal spending.</p> <p>They would ask him how much time he thinks that Congress should spend scrutinising three hundred thousandths of 1% of the federal budget. If Congress spent one minute debating every McCain Woodstock museum-sized expenditure, it would take it 6.3 years to get through this year's budget, assuming that it was in session 24 hours a day, 365 days a year.</p> <p>In the same vein, <a href="http://www.politifact.com/truth-o-meter/statements/2010/feb/24/americans-united-change/ad-says-bachmann-wants-wean-nation-entitlements-pr/">when a politician asserts that social security is going bankrupt</a> and that there will not be anything left for her children or grandchildren, serious reporters would ridicule her for being ignorant of the social security trustees projections. These projections show that <em>even if nothing is ever done to change the programme</em>, future beneficiaries will always be able to collect a higher benefit than current retirees. The "nothing there for our children" would be treated as a serious gaffe, sort of like then Senator Obama's comment before the Pennsylvania primary about working-class people being bitter and clinging to guns and religion. The difference is that the social security comment has direct relevance for policies that affect people's lives.</p> <p>When a politician complains about President Obama's taxes strangling the economy, reporters should ask them whether they know that taxes are less of a burden on the economy now than at any point since the second world war. A politician who is concerned about tax burdens should be expected to know this.</p> <p>If economic and political reporters applied the same sort of investigative zeal to economic and budget reporting as they did to Representative Anthony Weiner's twittered underwear picture, we would have a much better informed public. Not only would the news stories that we see and hear be much more informative, but politicians would be less likely to make things up to advance their political agenda.</p> <p>If politicians knew that they would pay a political price for making things up about the budget and the economy, then they would be less likely to do it. But we aren't likely to get competent reporters until it is as easy to fire incompetent ones as it is to fire incompetent school teachers.</p> </div> </div> </div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-bio field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"> <!--smart_paging_autop_filter-->Dean Baker is co-director of the <a href="http://cepr.org">Center for Economic and Policy Research</a> and author of the new book, <a href="http://p3books.com/falseprofits/"><em>False Profits: Recovering from the Bubble Economy</em></a><em> (PoliPointPress, 2010).</em> </div></div></div> Mon, 11 Jul 2011 15:00:01 -0700 Dean Baker, The Guardian 666936 at http://www.alternet.org Media News & Politics Media Economy media debt social security panic The Drug Market Scam: Why You Pay Way Too Much for Bad Medicine (And Bernie Sanders' Solution) http://www.alternet.org/story/151176/the_drug_market_scam%3A_why_you_pay_way_too_much_for_bad_medicine_%28and_bernie_sanders%27_solution%29 <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Senator Bernie Sanders has introduced a bill to create a prize fund that would buy up drug patents, so that drugs could be sold at their free market price.</div></div></div> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="/files/styles/story_image/public/story_images/default.jpg" alt="" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>Drugs are cheap. There are few drugs that would sell for more than $5-$10 a prescription in a free market. However, many drugs in the United States sell for hundreds of dollars per prescription and sometimes several thousand dollars per prescription. There is a simple reason for this fact: government-granted patent monopolies.</p> <p>The government gives patent monopolies to provide an incentive for drug companies to carry through research. This is an incredibly backward and inefficient way to pay for research. It leaves us paying huge amounts of money for cheap drugs. It also often leads to bad medicine.</p> <p>We can do better and Senator Bernie Sanders has proposed a way. He has introduced <a href="http://keionline.org/node/1147" target="_blank">a bill</a> to create a prize fund that would buy up patents, so that drugs could then be sold at their free market price. Sanders' bill would appropriate 0.55 percent of GDP (about $80 billion a year, with the economy's current size) for buying up patents, which would then be placed in the public domain so that any manufacturer could use them at no cost.</p> <p>This money would come from a tax on public and private insurers. The savings from lower-cost drugs would immediately repay more than 100 percent of the tax.</p> <p>The country is projected to spend almost $300 billion on prescription drugs this year. Prices would fall to roughly one-tenth this amount in the absence of patent monopolies, leading to savings of more than $250 billion. The savings on lower drug prices should easily exceed the size of the tax, leaving a substantial net reduction in costs to the government and private insurers.</p> <p>The Sanders prize fund bill would go far toward eliminating the problems that pervade the drug industry. First, it would end the nonsense around getting insurers or the government to pay for drugs. If drugs cost $5-$10 per prescription, there would be no big issues about who pays for drugs. This would eliminate the need for the paperwork and the bureaucracy that the insurance industry has created to contain its drug payments.</p> <p>We would also end the phony moral dilemmas we create for ourselves with drug patents. Should Medicare pay $100,000 a year for a drug to treat a rare cancer in an otherwise healthy 80-year-old? This dilemma becomes a quick no-brainer when the drug is available for $200 a year in the free market with no patent protection.</p> <p>The Sanders prize fund could also put an end to many of the deceptive marketing practices that the industry now employs to push their drugs, overstating the benefits of their drugs and concealing potentially harmful side effects. It is rare that a month goes by when there is not a scandal along these lines. If the drug companies no longer stood to get billions in profits from such deceptive marketing, they wouldn't do it.</p> <p>It would also likely reduce much of the waste in the current research process. Drug companies often spend large sums developing copycat drugs that are of little medical value, but can allow them to get a portion of a competitor's patent rents.</p> <p>The Sanders prize fund is not the only possible alternative to patents for supporting research on prescription drugs. We could also go the route of direct upfront government funding where the government would contract for the research in advance. We already spend more than $30 billion a year on such research through the National Institutes of Health. This is widely viewed by health experts as money very well spent.</p> <p>It would be possible to ramp up this funding by a factor of two or three with the intent of replacing patent-supported research. This direct funding would have the advantage that all results would be fully available to researchers and the general public, since that would be a condition of the funding. Representative Dennis Kucinich introduced <a href="http://www.cepr.net/index.php/publications/reports/financing-drug-research-what-are-the-issues/" target="_blank">a bill along these lines a few years ago</a>.</p> <p>At this point we don't have to decide the best alternative to patent-supported research for prescription drugs. What we have to do is to get the debate started. The Centers for Medicare and Medicaid Research project that we will spend almost $4 trillion on prescription drugs over the next decade. This is almost $10,000 for every man, woman and child in the country. It's long past time that we did some serious thinking to ensure that we are getting good value for this money. The Sanders prize fund bill is an important step in this direction.</p> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-bio field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"> <!--smart_paging_autop_filter-->Dean Baker is co-director of the <a href="http://cepr.org">Center for Economic and Policy Research</a> and author of the new book, <a href="http://p3books.com/falseprofits/"><em>False Profits: Recovering from the Bubble Economy</em></a><em> (PoliPointPress, 2010).</em> </div></div></div> Thu, 02 Jun 2011 06:00:01 -0700 Dean Baker, AlterNet 666532 at http://www.alternet.org Drugs Personal Health Drugs drugs pharma free market patents