AlterNet.org: Dean Baker http://www.alternet.org/authors/dean-baker en Andrew Ross Sorkin Doesn't Like Glass-Steagall, So Is He Making Things Up to Push His Case? http://www.alternet.org/labor/andrew-ross-sorkin-doesnt-glass-steagall-so-he-making-things-push-his-case <!-- 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 new column has some problems.</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_2016-07-28_at_11.27.42_am.png" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>That's the question millions are asking after reading his <a href="http://www.nytimes.com/2016/07/26/business/dealbook/one-thing-both-parties-want-break-up-the-banks-again.html?ref=business">column</a> noting that both the Democratic and Republican platforms call for re-instating Glass-Steagall. (It is important to note that the Democrats refer to the 21st Century Glass-Steagall Act introduced by Senator Elizabeth Warren. This measure would also address some of the problems created by the shadow banking system by changing rules on repayment in bankruptcy. This would put a check on the ability of troubled institutions to have access to credit markets.) Sorkin indicates that he doesn't approve of Glass-Steagall.</p><p>At one point he tells readers:</p><blockquote><p>"Whether reinstating the law is good idea or not, the short-term implications are decidedly negative: It would most likely mean a loss of jobs as part of a slowdown in lending from the biggest banks.</p><p>"There is a reasonable argument to make that it would also put the United States banking industry at a competitive disadvantage relative to international peers, some of which face fewer restrictions."</p></blockquote><p>It would be interesting to know how Sorkin decided that reinstating Glass-Steagall would reduce lending in the economy or even big bank lending. (It is possible that a reduction in big bank lending would be offset by more lending by smaller banks.) The big banks were supposed to keep a strict separation between their investment bank divisions and their commercial bank operations, so it's not obvious why a separation would reduce lending if they had been following the law.</p><p>It is also worth noting, that according to standard trade theory, if our surplus on banking services is reduced by a new Glass-Steagall, our trade deficit in other areas, like manufacturing, would decline. Many people might consider this a desirable outcome. Of course, this assumes that people follow the trade theory that ostensibly underlies NAFTA, the TPP, and other recent trade deals.</p><p>It is worth noting that Sorkin is right that Glass-Steagall would not have prevented the economic crisis in 2008. The problem was allowing a massive housing bubble to grow unchecked. When house prices collapsed the mortgages, and other assets that depended on house prices, plunged in value. The repeal of Glass-Steagall did not in any obvious way contribute to the bubble.</p> Thu, 28 Jul 2016 08:23:00 -0700 Dean Baker, CEPR 1060937 at http://www.alternet.org Labor Labor economy labor The Secret to the Incredible Wealth of Bill Gates http://www.alternet.org/economy/secret-bill-gatess-weath <!-- 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 secret to a monopolists&#039; success.</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_155863772-edited.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Sorry folks, this isn’t Trump University, I don’t have the plan for you to get rich quick. But it is important for everyone to understand exactly why Bill Gates is very rich. It’s called “copyright protection.”</p><p>If that sounds strange, imagine a world where everyone could make as many copies as they liked of Windows, Microsoft’s Office Suite, and any other software at no cost. They would only have to send Bill Gates a thank you note, if they felt like it. Bill Gates is undoubtedly a very smart and ambitious guy, but in the world without copyright protection, it is highly unlikely that he would be the world’s richest person.</p><p>This point may be simple and obvious, but it seems to have been lost on most of the people arguing about inequality. In these discussions we hear continual expressions of concern over how technology is behind the massive upward redistribution of income we have seen in the last four decades. This upward redistribution is usually treated as an unfortunate fact of nature. Even if we don’t like to see the rich continually get richer at the expense of the rest of society, what can we do, stop technology?</p><p>This is sort of like a group of seriously overweight people struggling with ways to shed pounds as they gobble down their cheesecake and sip their non-skim latte. A little serious thinking could go a long way.</p><p>The story of Bill Gates’ copyright protection, along with patent protection for prescription drugs and all sorts of other things, are a big part of the story of inequality. The key issue is that these protections are created by the government; they don’t come from the technology. It is the protections that make some people very rich, not the technology.</p><p>We grant patent and copyright monopolies in order to provide an incentive for innovation and creative work. It is arguable whether these mechanisms are the best way to provide these incentives. For example, in addition to making drugs very expensive, even when they would be cheap in a free market, patent protection also provides an enormous incentive for drug companies to <a data-beacon="0}}" href="http://cepr.net/publications/reports/patent-monopolies-and-the-costs-of-mismarketing-drugs" target="_hplink">misrepresent the safety and effectiveness of their drugs</a>. But the key point for the inequality issue is that the strength and length of these monopolies is set by government policy.</p><p>We can think of these factors as being like a water faucet, if we want more incentives we make patents and copyrights longer and stronger, turning the faucet up. That means more money will go to people who benefit from owning patents and copyrights. This money will come out of the pockets of the rest of us when we pay higher prices for our drugs, software, and everything else subject to patent and copyright protection.</p><p>On the other hand, if we are worried that too much money is going to the people who benefit from patent and copyright protection then the simple answer is turn down the faucet. That means shorten and weaken patent and copyright protection. That should be about as simple as it gets.</p><p>In the last four decades our policy has been very much in the direction of longer and stronger. In the case of copyrights, the term was lengthened to 55 years to 95 years. It was extended to digital media as the Internet developed. In fact, the government even prohibited the selling of various digital devices until they included effective locks that blocked unauthorized reproductions. Recent legislation has made Internet intermediaries into copyright cops, requiring them to police their sites to ensure they are not allowing for the unauthorized distribution of copyrighted material. The entertainment industry continually pushes measures like the Stop on Line Piracy Act (SOPA) which would make the copyright cop requirements even stronger.</p><p>Patent length has also been extended, going from 14 or 17 years from the date of issuance (depending on the type of patent) to 20 years from the date of application. The law also provides for extensions in the event the approval process was overly long. The scope of patentable products has been hugely expanded so that it now covers life-forms, software, and business methods. We have also made it far easier for individuals and corporations to obtain patents on research that was conducted largely with public funding. In addition, in the case of prescription drugs, we have added new forms of protection in the form of data and marketing exclusivity that preclude generic competition even in cases where there are no binding patents.</p><p>We have also pushed the case for patent and copyright protection overseas, making it a top priority in trade deals like the Trans-Pacific Partnership (TPP). Instead of using our economic and political power to push for things like labor rights or a better environment, we have demanded that other countries pay Disney more for its movies and Pfizer more for its drugs. In fact, one of the provisions in the TPP actually requires member countries to impose criminal penalties for some types of copyright violation.</p><p>These and other expansions of patent and copyright protection are all done out in the open. It’s not necessary to gain access to secret files or have an informer with access to inside information. Anyone who cared would know that making these protections stronger has been a central tenet of the economic policy pursued by both political parties over the last four decades. The predicted and actual effect of this policy is to redistribute income to the owners of patents and copyrights, in other words to redistribute income upward.</p><p>It might seem obvious then, if the concern is the upward redistribution of income that we should look to weakening these protections. But somehow, the policy folks who debate inequality never seem to notice patents and copyrights. They just keep eating their cheesecake.</p><p> </p> Tue, 21 Jun 2016 07:35:00 -0700 Dean Baker, CEPR 1058689 at http://www.alternet.org Economy Economy bill gates inequality the 1% economy copyright protection copyright law Why Shorter Workweeks Would Wipe Out the Much-Hyped Threat of Robots Stealing Our Jobs http://www.alternet.org/economy/why-shorter-workweeks-would-wipeout-much-hyped-threat-robots-stealing-our-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">If we can’t increase the demand for labor, we could go the other route and share the amount of work available more evenly.</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_103035632.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>More than eight years after the start of the Great Recession, our labor market is far from recovering by most measures. At 5 percent, the current unemployment rate is not very different from its pre-recession level, but the main reason it is so low is that millions of people have given up looking for work and dropped out of the labor force. These people are no longer counted as being unemployed.</p><p>And contrary to what is often claimed, this is not a story of retiring baby boomers. The percentage of the prime age population (people between the ages of 25-54) that is working is down by 2 full percentage points from its pre-recession level. This translates into 2.5 million people who have given up looking for work at an age where they should be at the peak of their working career. That looks like pretty solid evidence of a weak labor market.</p><p>There are two ways to deal with a situation in which the number of people who want to work exceeds the number of jobs. The first is to increase demand in the economy, thereby increasing the demand for workers. We could in principle do this with increased government spending, but people don’t like budget deficits.</p><p>Reducing the size of the trade deficit would also increase demand, but this requires that our politicians make trade deficits a priority, which is not likely.</p><p>Some politicians claim that they have a magic formula that will cause companies to go on an investment spree. Unfortunately, the magic seems to work only in the elections, never once they are in office.</p><p>If we can’t increase the demand for labor, we could go the other route and share the amount of work available more evenly. This can be done through a variety of mechanisms, such as shorter workweeks, mandated vacations, paid sick days, and paid family leave. The idea is that we would get most workers to put in less time on the job, thereby creating demand for more workers.</p><p>That shouldn’t sound like a strange concept. It was exactly this sort of thinking that got us the 40-hour workweek back in 1938. Congress passed the Fair Labor Standards Act, which required employers to pay time and half if they required workers to put in more than a 40-hour week.</p><p>There were people at the time who pronounced the law a disaster and job killer, but the facts disagreed. The economy was lifted out of the Great Depression by the spending associated with World War II. We then had the three most prosperous decades in the country’s history as we saw strong wage and productivity growth accompanied by low unemployment.</p><p>The Fair Labor Standards Act was part of a steady progression toward shortening work time as the country got wealthier. Unfortunately, it was also pretty much the end of this progression. Since expensive nonwage benefits like health care insurance and pensions were largely provided as fixed cost per worker, employers decided they would rather require more hours per worker than hire more workers. As a result, the 40-hour workweek was largely frozen in place.</p><p>This makes the United States an outlier internationally. Workers in other wealthy countries put in many fewer hours on average than do workers in the United States. To take one prominent example, according to data from the Organisation for Economic Co-operation and Development, the average number of hours worked in Germany is almost 25 percent less than the average for the United States. This has helped push Germany’s unemployment rate down to 4 percent. And, unlike the United States, the share of the population in Germany with jobs is far above its pre-recession level.</p><p>We cannot, of course, make our economy a carbon copy of Germany, but we can pass laws requiring paid time off for family leave and sick days, as many states and cities have already done. In Germany, workers are guaranteed six weeks a year of paid vacation. We can start at two or three. And, we can restructure our unemployment insurance system to encourage firms to reduce hours with work sharing rather than layoff workers.</p><p>Technology is supposed to be about making our lives better. An important way in which it does this is by reducing the number of hours that we have to spend working so that we can have more time to be with our family or enjoy other pursuits. There is a great fear across the country that robots will take our jobs. If we correctly structure the economy, robots will give us more free time, and that will be good.</p><p><em>This article originally appeared in <a href="http://www.insidesources.com/">The Daily Journal.</a></em></p><p> </p> Tue, 07 Jun 2016 13:18:00 -0700 Dean Baker, Center for Economic and Policy Research 1057926 at http://www.alternet.org Economy Economy Labor economy labor technology technology in the workplace the 40 hour workweek Why Does the NYT Feel the Need to Tell Readers Things That Are Untrue About Trade and Manufacturing Jobs? http://www.alternet.org/labor/why-does-nyt-feel-need-tell-readers-things-are-untrue-about-trade-and-manufacturing-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">It is almost impossible to tell a story that the explosion of the trade deficit did not cost manufacturing jobs.</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_2016-05-05_at_3.38.25_pm.png" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>It is bizarre how many people feel the need to claim that a large trade deficit in manufactured goods does not cost manufacturing jobs. You can argue all sorts of things about the merits of trade, and even make a story about how a trade deficit is good (pretty hard, when we're below full employment), but it is almost impossible to tell a story that the explosion of the trade deficit between 1997 and 2006 did not cost manufacturing jobs.</p><p>Nonetheless that is the story the NYT <a href="http://www.nytimes.com/2016/05/02/us/politics/indiana-primary-economy.html?mabReward=CTM&amp;moduleDetail=recommendations-0&amp;action=click&amp;contentCollection=Media&amp;region=Footer&amp;module=WhatsNext&amp;version=WhatsNext&amp;contentID=WhatsNext&amp;src=recg&amp;pgtype=article">gave its readers</a> when discussing Indiana's economy just before the primaries this week. It presents the views of Michael J. Hicks, director of the Center for Business and Economic Research at Ball State University in Muncie, Indiana:</p><p>"Factory jobs have declined, he added, but not because of trade deals with other countries as Mr. Trump and Mr. Sanders assert, but because Indiana factories are increasingly efficient and fewer workers are needed.<br /><br />"'Manufacturing employment peaked in 1973,' he said, adding that since then the productivity of Indiana factory workers has climbed 250 percent. 'We need far fewer workers, and a very different type of worker, too.'"</p><p>In the country as whole manufacturing employment peaked in the early 1970s, but then remained more or less constant, while falling as a share of total employment since the labor force grew. However employment fell sharply in the years from 2000 to 2006. While there was productivity growth in manufacturing over the years 2000 to 2006, that was also true for the years 1973 to 2000. The difference in the years 2000 to 2006 was the sharp rise in the trade deficit.</p><p>This was also the story in manufacturing employment in Indiana, as can be seen in the graph below.</p><p></p><div alt="" class="media-image" height="306" width="577"><img alt="" class="media-image" height="306" width="577" typeof="foaf:Image" src="/files/screen_shot_2016-05-05_at_3.35.49_pm.png" /></div><p>As can be seen, manufacturing employment had been rising through the 1990s recovery. It peaked in December of 1999 at 672,200 and then fell to 556,700 by December of 2006, a drop of almost 20 percent. Employment fell further during the 2008-2009 recession, although it has recovered the ground lost. Anyhow, the data certainly seems to support the case that Indiana lost a large number of jobs due to trade in the years 1999-2006, it's not clear why the NYT would want to deny this fact.</p> Thu, 05 May 2016 12:33:00 -0700 Dean Baker, CEPR 1055953 at http://www.alternet.org Labor Labor Media media new york times labor jobs working work After DC's Centrists Failed to Shred Safety Nets, Thomas Friedman Calls for Centrist Revival http://www.alternet.org/economy/after-dcs-centrists-failed-shred-safety-nets-thomas-friedman-calls-centrist-revival <!-- 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 establishment-defending NY Times columnist spreads lies about populists who defend Main St. America.</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_cocktail_party.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Thomas Friedman really is a gift to the world. As a long established New York Times columnist and author of many widely touted books, he is a great source of insight into establishment thinking. He comes through brilliantly in his <a href="http://www.nytimes.com/2016/05/04/opinion/trump-and-the-lords-work.html?action=click&amp;pgtype=Homepage&amp;clickSource=story-heading&amp;module=opinion-c-col-left-region&amp;region=opinion-c-col-left-region&amp;WT.nav=opinion-c-col-left-region">column</a> on Wednesday.</p><p>Friedman's basic story is that the two parties need to work out compromises, like the "Grand Bargain" on the budget, that President Obama tried to negotiate in 2011 with then Speaker John Boehner. Friedman blames the intransigence of the Republicans for failing to come to an agreement on this and other important issues. He argues that Trump is where this extremism gets them. His hope is that now the Republicans will move to the center and work out the deals that Friedman would like to see.</p><p>It's good to see that Friedman is looking forward to working with Republican centrists again, but let's look at the nature of his argument. Basically his story is that the truth lies in the center and these know nothing types need to be chased out of the political debate:</p><blockquote><p>"In this vortex [the 2008 economic collapse and the political polarization that followed] a lot of the public got unmoored and disoriented, opening the way for populists with simple answers. Get rid of immigrants, end trade with China or eliminate big banks and all will be fine. It’s nonsense."</p></blockquote><p>Friedman is right that it is nonsense, but it is also not what anyone is saying. Even Donald Trump doesn't propose getting rid of all immigrants, which is not to say that his plan for departing 11 million unauthorized immigrants is not absurd and inhumane. And neither Trump nor Sanders proposed ending trade with China. And, while Sanders agrees with many leading economists that breaking up the big banks is important, he has certainly never implied that this would somehow make everything fine.</p><p>In short, Friedman is making up absurd positions, attributing them to the people he doesn't like, and using this as an excuse to throw them out of the discussion. He wants to leave it to the real experts.</p><p>Okay, let's see how the experts have done, starting with some of the details of the "Grand Bargain." As Friedman reminds us, a big part of the Grand Bargain was cutting Social Security and Medicare. Is it really true, that in a world where few workers now have traditional pensions and most are not able to accumulate substantial sums in 401(k)s or other savings, Social Security is too generous? The vast majority of the public does not hold this view. On what basis has Thomas Friedman decided it is true?</p><p>With Medicare the problem is a wasteful health care system, not the coddling of the over 65 population. One of the ironies, that has apparently escaped Friedman's attention, is that the slowdown in health care cost growth over the last six years has actually led to more savings in Medicare than had been sought by Bowles and Simpson in their deficit cutting plan that was the basis for the Grand Bargain.</p><p>Of course the whole idea that we needed to reduce the deficit in an economy that was and is still well below its full employment level of output is wrong. Had the Grand Bargainers gotten their way in 2011, the recovery would have been even slower and weaker.</p><p>But this is the real story of the establishment. After all, the 2008 crash was not a rare weather event that struck the country and the world unexpectedly. It was the result of the incompetence of our country's leading economists in both parties. They could not see the dangers in an $8 trillion housing bubble.</p><p>A similar story applies in foreign policy circles, where many foreign policy experts were prepared to believe the Bush administration's transparent lies about Saddam Hussein's weapons of mass destruction. And, they actually thought that the United States could go into Iraq and put in place a stable government that enjoyed popular support.</p><p>The amazing part of the story is that the establishment types pay no price for being wrong in really big ways in their areas of expertise. This is best exemplified by Friedman himself. He can be wrong on every single thing he writes, every day of his life, and it will not in any way jeopardize his standing as one of the country's most respected commentators on policy and politics.</p><p>And he wonders why the public is angry.</p><p> </p> Thu, 05 May 2016 09:15:00 -0700 Dean Baker, Beat the Press 1055929 at http://www.alternet.org Economy Economy Election 2016 thomas friedman dean baker Washington centists President Obama Pushes a Weak Case on TPP http://www.alternet.org/labor/president-obama-pushes-weak-case-tpp <!-- 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">If Team Pfizer gains from stronger protection, the rest of the country loses. </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_2016-05-03_at_10.55.58_am.png" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>President Obama continued the administration’s boasting about how the Trans-Pacific Partnership (TPP) will eliminate Vietnam’s tariff on exports of U.S. whale meat. You may have missed it, but this tariff, along with Malaysia’s tariff on U.S. exports of shark fins, and Japan’s tariff on our ivory exports, are among the 18,000 tariffs that President Obama said would be eliminated by the TPP in a Washington Post <a href="https://www.washingtonpost.com/opinions/president-obama-the-tpp-would-let-america-not-china-lead-the-way-on-global-trade/2016/05/02/680540e4-0fd0-11e6-93ae-50921721165d_story.html?hpid=hp_no-name_opinion-card-c%3Ahomepage%2Fstory">column</a> today.<br /><br />This 18,000 tariff figure was intended to sound very impressive, but according to <a href="http://www.citizen.org/pressroom/pressroomredirect.cfm?ID=5776">Public Citizen</a> the United States doesn’t export at all in more than half of the categories and in almost all the ones in which it does export the tariffs are already low. One important exception is tobacco. Several of the countries in the TPP have high tariffs on U.S. tobacco exports, so the TPP will be making cigarettes cheaper for kids in Vietnam, Malaysia, and elsewhere.<br /><br />President Obama framed the TPP as an anti-China measure, warning readers:<br /><br />“As we speak, China is negotiating a trade deal that would carve up some of the fastest-growing markets in the world at our expense, putting American jobs, businesses and goods at risk.”<br /><br />Actually this is not the way the economy works. If China reduces trade barriers with other countries in Asia, allowing the region to grow more rapidly, then it should also make the United States more prosperous. The region would be a bigger source of demand for U.S. exports and a more efficient provider of goods and services to the United States. That was exactly the logic of the Marshall Plan that helped to rebuild West Europe after World War II. Greater economic integration in the region, even if engineered in part by China, is something that the United States should applaud, not fear.</p><p><br />President Obama argued that the big difference between the TPP and the trade deals pushed by China is that the TPP will impose our rules. At the top of President Obama’s list was stronger and longer patent and copyright protection. These forms of protection raise the price of the protected items by several thousand percent above the free market price, in the same way that a tariff of 5,000 or 10,000 percent raises the price far above the free market price.<br /><br />Higher prices due to increased copyright and patent protection can impose large costs on economies and slow economic growth. To give an example, the New Zealand government <a href="https://www.scribd.com/doc/284024406/TPP-Factsheet-Intellectual-Property">estimated</a> that the increase in the length of copyright protection required by the TPP, from its current 50 years to 70 years, would cost it 0.024 percent of GDP, the equivalent of 4.3 billion annually in the U.S. economy. This figure is striking since this is a relatively small change for a country that already has strong copyright protection. The cost in developing countries like Malaysia and Vietnam would almost certainly be much larger.<br /><br />The biggest cost from the increased protectionism in the TPP is likely to be with prescription drugs where it imposes stronger and longer patent and related protections. The goal is to make these countries pay as much for their drugs as the United States. Currently we spend more than $420 billion a year (@2.2 percent of GDP) on drugs that would likely cost about one-tenth this amount in a free market. If we succeed in making drugs as expensive in the TPP countries it will both be an enormous drain on their economies and also jeopardize the health of their populations.<br /><br />It is also important to understand that in standard trade models, the more money that Pfizer gets for its drugs and Microsoft gets for its software, the less the U.S. gets for its other exports. The standard assumption is that the overall trade balance will not be changed if these companies get another $20 or $30 billion annually in royalties and licensing fees. This means that our trade deficit in everything else will rise by $20 or $30 billion.<br /><br />There is no Team America in this story. If Team Pfizer gains from stronger protection, the rest of the country loses.<br /><br />One other important rule that the Obama administration pushed in the TPP is the Investor-State Dispute Settlement (ISDS) mechanism. This is an extra-judicial process that is open exclusively to foreign investors. Under this process, foreign investors, including foreign subsidiaries of U.S. corporations, can challenge any law at the federal, state, or local level. It can impose large fines, which can make it impractical to keep the laws on the books.<br /><br />These tribunals can rule on any regulations put forward for protecting labor, the environment or public health and safety. The ISDS tribunals are not bound by precedent, nor are their rulings subject to appeal. For those who think that the U.S. legal system does an adequate job of protecting foreign investors, it is difficult to see why we would want to establish this extra-judicial process.<br /><br />In short, there is not a credible story that the TPP will be a big boost to U.S. prosperity. It does pose a threat to the countries of the region (including the United States) in the form of higher prices for prescription drugs and other protected items. It also creates a whole new extra-judicial system that can threaten regulations designed for important public purposes.<br /><br />This is a hard deal to sell, which probably explains why President Obama is trying to promote fears of China. That should not be allowed to help his case.</p> Tue, 03 May 2016 07:53:00 -0700 Dean Baker, CEPR 1055769 at http://www.alternet.org Labor Labor tpp work workers labor obama media The Washington Post Says Doctors Without Borders Is Silly to Worry About the Impact of the TPP on Drug Prices http://www.alternet.org/labor/washington-post-says-doctors-without-borders-silly-worry-about-impact-tpp-drug-prices <!-- 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 Washington Post editorial board tells us not to fear, that the TPP is actually &quot;a healthy agreement.&quot;</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_2016-04-26_at_12.41.27_pm.png" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>The humanitarian group, <a href="http://www.doctorswithoutborders.org/help-us-fix-tpp">Doctors Without Borders</a>, along with many other NGOs involved in providing health care to people in the developing world, have come out in opposition to the Trans-Pacific Partnership (TPP) over concerns that the deal will make it more difficult to provide drugs to people in the developing world. Their argument is that it will raise drug prices by making patent protection stronger and longer and by making it more difficult for countries to scale back protections that they may come to view as excessive and wasteful.</p><p>But the Washington Post editorial board <a href="https://www.washingtonpost.com/opinions/a-healthy-agreement/2016/04/24/4a35f1a2-0590-11e6-bdcb-0133da18418d_story.html">tells us</a> not to fear, that the TPP is actually "a healthy agreement." The gist of its argument is an <a href="https://www.foreignaffairs.com/articles/2016-03-23/dose-tpps-medicine">analysis</a> by Council on Foreign Relations Fellow Thomas Bollyky, which finds that there were few incidents of large increases in drug prices for countries following the signing of previous trade deals. </p><p>As I noted in a <a href="http://cepr.net/blogs/beat-the-press/prescription-drugs-and-the-trans-pacific-partnership-big-pharma-hit-by-skills-shortage?highlight=WyJwcmVzY3JpcHRpb24gZHJ1Z3MgYW5kIiwiYW5kIHRoZSB0cmFucy1wYWNpZmljIiwidHJhbnMtcGFjaWZpYyBwYXJ0bmVyc2hpcCBiaWciLCJiaWcgcGhhcm1hIGhpdCIsImhpdCBieSBza2lsbHMiLCJza2lsbHMgc2hvcnRhZ2UiXQ==">previous post</a>, this analysis almost seemed designed not to find substantial rises in prices. Bollyky looked at changes in drugs prices immediately after a trade deal took effect. The problem with this approach is:</p><p>"In most cases, the rules in these agreements will only apply to new drugs, and even then to a subset of new drugs, for example patent protection for a drug that is a combination of already approved drugs. They may also allow for the extension of patent terms beyond the date where they would have expired under pre-trade deal rules, but here again the impact will only be felt gradually over time.<br /><br />"Furthermore, the date of a trade deal with the United States may not be the key factor in pushing up drug prices. The United States signed a deal with South Korea in 2012 that required stronger patent and related protections, but most of these conditions were already law as of 2009 due to a <a href="https://www.insideeulifesciences.com/2013/06/10/drug-patent-protection-in-korea-under-the-eu-korea-free-trade-agreement/">trade agreement</a> Korea signed with the European Union."</p><p>In other words, this before and after approach is a bit like weighing people the day after they gave up drinking sugary soda to determine whether this decision will affect obesity. It's not serious stuff.</p><p>There is evidence that prior trade agreements have affected drug prices. As I noted in that earlier post:</p><p>"An <a href="http://jgm.sagepub.com/content/9/2/75.short">analysis</a> of the impact of the rules in the 2001 trade agreement between the United States and Jordan found that it had increased annual spending on drugs by $18 million by 2004. This is slightly less than 0.16 percent of Jordan’s GDP in that year, the equivalent of $28 billion annually in the U.S. economy today.</p><p>"There is a similar story of sharply higher drug spending in Morocco, which signed a pact with the United States in 2006. In Morocco, spending on drugs went from <a href="http://www.businesswire.com/news/home/20110203006154/en/Research-Markets-Morocco-Pharmaceuticals-Healthcare-Report-Q1">$662 million in 2009</a> (0.7 percent of GDP) to <a href="http://store.bmiresearch.com/morocco-pharmaceuticals-healthcare-report.html">$1.4 billion</a> (1.4 percent of GDP) in 2015."</p><p>To be clear, Bollyky does have a limited point in his piece, any specific trade deal should not be viewed in isolation. It a process of creating ever stronger and longer patent protections, which mean ever larger gaps between the protected price of drugs and their free market price. (For some reason, none of the modelers ever factor in the negative impact of higher drug prices into their analysis of the economic impact of these trade deals.)</p><p>In this sense, the TPP should be understood as working alongside other steps, like the Obama administration's pressures on the Indian government to give up flexibilities granted under TRIPS, to ensure that U.S. drug companies can get ever higher prices from their drugs as protections are extended more broadly around the world. For people who are concerned about public health and would prefer a <a href="http://cepr.net/publications/reports/patent-monopolies-and-the-costs-of-mismarketing-drugs">less corrupt</a> and <a href="http://cepr.net/publications/reports/publicly-funded-clinical-trials-a-route-to-sustained-innovation">more efficient</a> mechanism for supporting drug research, this sounds like a really bad deal.</p> Tue, 26 Apr 2016 09:37:00 -0700 Dean Baker, Center for Economic and Policy Research 1055319 at http://www.alternet.org Labor Labor Media washington post labor work workers tpp drug prices New York Times Absurdly Claims Verizon Workers Make Average of $130,000 a Year: Here's Why That's Not True http://www.alternet.org/labor/new-york-times-absurdly-claims-verizon-workers-make-average-130000-year-heres-why-thats-not <!-- 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 NYT is relying on some interesting math for this one.</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_2016-04-14_at_1.30.07_pm.png" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Some readers may have been misled by a statement in a NYT <a href="http://www.nytimes.com/2016/04/14/business/verizon-workers-strike.html">article</a> on the Verizon strike that the union members at Verizon receive an average of $130,000 a year in wages and benefits. This is what the company pays in labor costs per worker. This includes not only straight pay, but also overtime pay, employer-side Social Security and Medicare taxes, health insurance, and pension benefits. The pension payments are everything that Verizon pays into its pension, including payments to cover costs of retired employees, averaged over the size of its current unionized workforce.</p><p>While the $130,000 number would imply an average hourly wage of $65. The average non-overtime pay of Verizon's workers is probably in the range of $35 to $40 an hourly. While this is still a relatively good wage in the U.S. economy, it is considerably lower than the $65 an hour that readers may have inferred from too quickly reading the article.</p> Thu, 14 Apr 2016 10:19:00 -0700 Dean Baker, Center for Economic and Policy Research 1054602 at http://www.alternet.org Labor Labor Media verizon labor work workers DC Press Corps Spins Itself Silly Over Sanders’ Specifics http://www.alternet.org/election-2016/dc-press-corps-spins-itself-silly-over-sanders-specifics <!-- 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">When asked how he would break up the big banks, Sanders said he would leave that up to the banks. That’s exactly the right answer. </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/maxresdefault_5.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p dir="ltr">The Washington press corps has gone into one of its great feeding frenzies over Bernie Sanders’ <a href="http://www.nydailynews.com/opinion/transcript-bernie-sanders-meets-news-editorial-board-article-1.2588306">interview</a> with New York Daily News. Sanders avoided specific answers to many of the questions posed, which the DC gang are convinced shows a lack of the knowledge necessary to be president.</p><p dir="ltr">Among the frenzied were the Washington Post‘s <a href="https://www.washingtonpost.com/news/the-fix/wp/2016/04/05/this-new-york-daily-news-interview-was-pretty-close-to-a-disaster-for-bernie-sanders/?hpid=hp_rhp-top-table-main_wisconsinweb-825a%3Ahomepage%2Fstory">Chris Cillizza</a>, The Atlantic‘s <a href="http://www.theatlantic.com/politics/archive/2016/04/bernie-sanderss-rough-ride-with-the-daily-news/476919/">David Graham</a> and Vanity Fair‘s <a href="http://www.vanityfair.com/news/2016/04/bernie-sanders-break-up-banks">Tina Nguyen</a>, with CNN‘s <a href="http://www.cnn.com/2016/04/05/politics/bernie-sanders-interview-new-york-daily-news/index.html">Dylan Byers</a> telling about it all. Having read the <a href="http://m.nydailynews.com/opinion/transcript-bernie-sanders-meets-news-editorial-board-article-1.2588306">transcript</a> of the interview, I would say that I certainly would have liked to see more specificity in Sanders’ answers, but I’m an economist. And some of the complaints are just silly.</p><p dir="ltr">When asked how he would break up the big banks, Sanders said he would leave that up to the banks. That’s exactly the right answer. The government doesn’t know the most efficient way to break up JP Morgan; JP Morgan does. If the point is to downsize the banks, the way to do it is to give them a size cap and let them figure out the best way to reconfigure themselves to get under it.</p><p dir="ltr">The same applies to Sanders not knowing the specific statute for prosecuting banks for their actions in the housing bubble. Knowingly passing off fraudulent mortgages in a mortgage-backed security is fraud. Could the Justice Department prove this case against high-level bank executives? Who knows, but they obviously didn’t try.</p><p dir="ltr">And the fact that Sanders didn’t know the specific statute—who cares? How many people know the specific statute for someone who puts a bullet in someone’s head? That’s murder, and if a candidate for office doesn’t know the exact title and specifics of her state murder statute, it hardly seems like a big issue.</p><p dir="ltr">There is a very interesting contrast in media coverage of House Speaker Paul Ryan. In Washington policy circles, Ryan is treated as a serious budget wonk. How many reporters have written about the fact this serious budget wonk has repeatedly proposed eliminating most of the federal government? This was not an offhand gaffe that Ryan made when caught in a bad moment; this was in his budgets that he pushed through as chair of the House Budget Committee.</p><p dir="ltr">This fact can be found in the Congressional Budget Office’s (CBO) <a href="http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/121xx/doc12128/04-05-ryan_letter.pdf">analysis</a> of Ryan’s budget (page 16, Table 2). The analysis shows Ryan’s budget shrinking everything other than Social Security and Medicare and other healthcare programs to 3.5 percent of GDP by 2050. This is roughly the current size of the military budget, which Ryan has indicated he wants to increase. That leaves zero for everything else.</p><p dir="ltr">Included in everything else is the Justice Department, the National Park System, the State Department, the Department of Education, the Food and Drug Administration, Food Stamps, the National Institutes of Health and just about everything else that the government does. Just to be clear, CBO did this analysis under Ryan’s supervision. He never indicated any displeasure with its assessment. In fact, he boasted about the fact that CBO showed his budget paying off the national debt.</p><p dir="ltr">So there you have it. The DC press corps that goes nuts because Bernie Sanders doesn’t know the name of the statute under which he would prosecute bank fraud thinks a guy who calls for eliminating most of the federal government is a great budget wonk.</p><p> </p> Fri, 08 Apr 2016 10:36:00 -0700 Dean Baker, FAIR 1054224 at http://www.alternet.org Election 2016 Election 2016 Media 2016 elections bernie sanders NY Daily news mainstream media How a Federal Agency's Data Error Ended Up Boosting the GOP's Assault on Social Security http://www.alternet.org/economy/how-federal-agencys-data-error-ended-boosting-gops-assault-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">A disturbing pattern for supposedly non-partisan analysts.</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_2016-02-12_at_9.14.39_am.png" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Yesterday the Congressional Budget Office (CBO) <a href="https://www.cbo.gov/publication/51232">corrected an error</a> that it made in projecting the share of earnings that will be replaced by Social Security for those nearing retirement. In a <a href="https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51047-SSUpdate-2.pdf">report</a> published last fall, CBO projected that for people born in the 1960s, the annual Social Security benefit for those retiring at age 65, would be 60 percent of their earnings for middle income retirees and 95 percent of earnings for those in the bottom quintile. The correction showed that benefits would replace 41 percent of earnings for middle income retirees and 60 percent of earnings for those in the bottom quintile.<br /><br />This mattered a great deal because the originally published numbers were quickly seized upon by those advocating cuts in Social Security benefits. For example, Andrew Biggs, who served in the Social Security Administration under President George W. Bush, used the projections as a basis for a <a href="http://www.wsj.com/articles/new-evidence-on-the-phony-retirement-crisis-1451952646">column</a> in the Wall Street Journal with the headline “new evidence on the phony retirement income crisis.” The piece argued that benefits were overly generous and should be cut back, at least for better off retirees. (To his credit, Biggs quickly retracted the piece after CBO acknowledged the mistake.)<br /><br />While this was a serious error, unfortunately it was not the first time that CBO had made a major error in an authoritative publication. In 2010, in its annual long-term budget projections it grossly overstated the negative effect on the economy of budget deficits. The 2010 long-term projections showed a modest increase in future deficits relative to the 2009 projections, yet the impact on the economy was far worse.<br /><br />The 2010 projections <a href="http://cepr.net/documents/publications/cbo-2010-07.pdf">showed a drop in GDP</a> of almost 18 percent by 2025, compared to a balanced budget scenario. This was more than twice as large as the impact shown in the prior year’s projections. The sharp projected drop in GDP could have been used to emphasize the urgency of deficit reduction. As was the case with the recent Social Security projections, CBO <a href="https://www.cbo.gov/publication/21546?index=11579&amp;type=2">corrected</a> its numbers after the error was exposed.</p><p>These two errors are troubling not only because of their size and importance to major public policy issues, but also because they should have been easily detected. Just to be clear, it is inconceivable that anyone at CBO deliberately put erroneous numbers in these publications. Hundreds of policy experts review these numbers after their publication. No one could think that faked numbers would escape detection.<br /><br />Nonetheless, these mistaken numbers somehow got out the door at CBO. All CBO publications undergo internal review processes. They don’t just allow a staffer to type a document and post it on the web. In the case of the budget projections, anyone who was knowledgeable about CBO models should have immediately recognized the sharp break with prior projections, just as we did. Yet somehow no one reviewing the projections at CBO caught the mistake.<br /><br />The same story applies to the projections of Social Security replacement rates. These numbers were far out of line with past projections as well as projections done by the Social Security Administration. Furthermore, the actual benefit numbers were included directly in the same publication in another table (Exhibit 9). They showed that the average benefit for a worker in the bottom quintile would be $11,000 a year (in 2015 dollars). Could this be 95 percent of these workers’ pay? The average benefit for a worker in the middle quintile was projected at $22,000. Is this 60 percent of the annual earnings of a middle income worker?<br /><br />Someone at CBO should have caught these numbers before they went out the door. They weren’t off by just a little bit, they were absurd. But somehow a number of economists and budget experts at CBO looked at these numbers and said they looked fine. The fact that both errors were in a direction that would tend to support cuts to Social Security is especially troubling. Would a major error in the opposite direction also escape detection?<br /><br />This question is especially important in light of CBO’s <a href="https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51129-2016Outlook_OneCol-2.pdf">latest set of budget projections</a>. These projections show the annual deficit rising from a relatively modest 2.9 percent of GDP this year to 4.9 percent of GDP in 2026. CBO highlighted this projected rise in the deficit in the very first paragraph of the summary. Needless to say, the Washington deficit hawks <a href="http://crfb.org/document/analysis-cbos-january-2016-budget-and-economic-outlook">quickly jumped</a> on the CBO numbers to renew their calls for deficit reduction, including cuts to Social Security and Medicare.<br /><br />However, a <a href="http://cepr.net/blogs/beat-the-press/budget-deficit-mania-and-the-congressional-budget-office">closer look</a> at the numbers showed that the only reason that the deficits are projected to increase is that CBO projects a sharp rise in interest rates over the next two years. Higher rates are projected to persist over the rest of the projection period. The projected rise in interest rates leads to higher interest payments, and therefore a large deficit.<br /><br />This projection of higher interest rates is troubling because CBO has projected a sharp rise in interest rates every year since 2010. It has been wrong in each of the last six years as interest rates remained low. So far, it looks like it will again be wrong in 2017, as long-term rates have fallen since the end of 2015. Given this track record, it might be reasonable for CBO to re-examine its models. After all, a model that consistently over-projects interest rates is not a very good model.<br /><br />Of course, if CBO were to project that interest rates remain somewhere near current levels, then there would not be much of a story of rising deficits, and little ammunition for those seeking cuts in Social Security and Medicare. There are certainly plausible explanations for CBO’s decision to stick to its model that don’t depend on a desire to cut these benefits, but the major errors that got through the door are not encouraging in this respect.</p><p> </p><p> </p> Fri, 12 Feb 2016 09:07:00 -0800 Dean Baker, Beat the Press 1050585 at http://www.alternet.org Economy Economy Election 2016 Labor News & Politics Congressional Budget Office and Social Security dean baker retirement security crisis New Yorker Magazine Shooting Blindly at Bernie Sanders http://www.alternet.org/media/new-yorker-magazine-shooting-blindly-bernie-sanders <!-- 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 ran a piece asking, “Should Millennials Get Over Bernie Sanders?” </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_342387872.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>It’s clear that Bernie Sanders has gotten many mainstream types upset. After all, he is raising issues about the distribution of wealth and income that they would prefer be kept in academic settings, certainly not pushed front and center in a presidential campaign.</p><p>In response, we are seeing endless shots at Sanders’ plans for financial reform, healthcare reform and expanding Social Security. Many of these pieces raise perfectly reasonable questions, both about Sanders’ goals and his route for achieving them. But there are also many pieces that just shoot blindly. It seems the view of many in the media is that Sanders is a fringe candidate, so it’s not necessary to treat his positions with the same respect awarded the views of a Hillary Clinton or a Marco Rubio.</p><p>The <strong>New Yorker</strong> is clearly in this attack mode. It ran a <a href="http://www.newyorker.com/culture/cultural-comment/should-millennials-get-over-bernie-sanders">piece</a> by Alexandra Schwartz asking, “Should Millennials Get Over Bernie Sanders?” You can guess the answer.</p><p>But the piece runs into serious problems getting there. It tells readers:</p><blockquote><p>[Sanders’] obsession with the banks and the bailout is itself phrased in weirdly retro terms, the stuff of an invitation to a 2008-election theme party. As my colleague Ben Wallace-Wells <a data-smart-underline-link-always="" data-smart-underline-link-background-position="67" data-smart-underline-link-color="rgb(0, 0, 0)" href="http://www.newyorker.com/news/benjamin-wallace-wells/bernie-sanders-knows-what-time-it-is">points out</a>, we voters under 30 have come of political age during the economic recovery under President Obama. When I graduated from college, unemployment was close to 10 per cent; it’s now at 5. Sanders’s attention to socioeconomic justice is stirring and necessary, but when <a data-smart-underline-link-always="" data-smart-underline-link-background-position="67" data-smart-underline-link-color="rgb(0, 0, 0)" href="https://twitter.com/SenSanders/status/691988741179772928" target="_blank">his campaign tweets</a> that it’s “high time we stopped bailing out Wall Street and started repairing Main Street,” you have to wonder why his youngest supporters, so attuned to staleness in all things cultural, are letting him get away with political rhetoric that would have seemed old even in 2012.</p></blockquote><p>Those familiar with economic data know the labor market, which is the economy for the vast majority of the public, is very far from recovering from the recession. While the unemployment rate is reasonably low, this is largely because millions of workers have dropped out of the workforce.</p><p>And, contrary to what is often asserted, these are not retiring baby boomers or people without the skills needed in a modern economy. The employment rate of prime-age workers (ages 25–54) is still down by 3.0 percentage points from its prerecession level. Furthermore, this drop is <a href="http://cepr.net/blogs/beat-the-press/did-the-great-recession-lead-to-the-great-vacation">for workers at all levels</a> of educational attainment. Employment rates are even down for workers with college and advanced degrees. Other measures of labor market strength, like the percentage of people involuntarily working part-time, the quit rate and the duration of unemployment spells, are all still at recession levels.</p><p>Furthermore, the huge shift from wages to profits that we saw in the downturn has not been reversed. As a result, wages are more than 6.0 percent lower than they would be if the labor share had not changed.</p><div alt="" class="media-image" height="288" width="480"><img alt="" class="media-image" height="288" width="480" typeof="foaf:Image" src="/files/styles/large/public/story_images/laborshareofcorporateincome-768x461.png" /><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --><div class="field field-name-field-caption field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Labor Share of Corporate Net Income.</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-image-source field-type-text field-label-inline clearfix"><div class="field-label">Photo Credit: </div><div class="field-items"><div class="field-item even">Bureau of Economic Analysis.</div></div></div> </div><p class="wp-caption-text"><em>Source: Bureau of Economic Analysis.</em></p><p>If this stuff is hard for <strong>New Yorker</strong> editor types to understand: If workers lose 6.0 percent of their wages to profit, it has the same impact on their living standards as if they faced a 6.0 percentage point increase in the payroll tax. Would the <strong>New Yorker</strong> think that today’s young people have anything to complain about if they had seen an increase in the payroll tax in 2009–10 of 6.0 percentage points, which still remains in place today?</p><p>If the answer to that one is “yes,” then its editors should be able to understand why millennials in 2016 are unhappy about the state of the economy, and why they might find a figure like Senator Sanders attractive.</p> Thu, 04 Feb 2016 12:24:00 -0800 Dean Baker, FAIR 1050158 at http://www.alternet.org Media Election 2016 Media News & Politics bernie sanders election 2016 the new yorker Washington Post Publishes Another Anti-Sanders Hit Piece—Still Gets it Wrong http://www.alternet.org/media/washington-post-publishes-another-anti-sanders-hit-piece-still-gets-it-wrong <!-- 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">Jeff Bezos-owned Post is going full-tilt against the Vermont Democratic Socialist. </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/sanders_5.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>The Washington Post again went after Senator Bernie Sanders in its <a href="https://www.washingtonpost.com/opinions/mr-sanderss-ideas-are-not-too-bold-they-are-too-facile/2016/01/28/e7125bca-c60a-11e5-9693-933a4d31bcc8_story.html">lead editorial</a>, telling readers that the Senator's proposals were "facile." It might be advisable for a paper that described President Bush's case for weapons of mass destruction in Iraq as "irrefutable" to be cautious about going ad hominem, but this is the Washington Post.</p><p>Getting to the substance, the Post is unhappy with Sanders proposal for single payer health insurance which it argues will cost far more or deliver much less than promised. While the Post is correct that Sanders has put forward a campaign proposal rather than a fully worked out health reform bill, it is not unreasonable to think that we can get considerably more coverage at a lower cost than we pay now. After all, there is nothing in our national psyche that should condemn us to forever pay twice as much per person for our health care as people in other wealthy countries. (I have written more about this issue <a href="http://cepr.net/blogs/beat-the-press/paul-krugman-bernie-sanders-and-medicare-for-all-2">here</a>.)<br /><br />On financial reform the Post seems to want everyone to think that after Dodd-Frank things are just fine on Wall Street. It apparently has not noticed that the big banks are even bigger than ever and that the financial sector continues to grow as a share of the economy, imposing an ever larger drag on growth. For these reasons, Sanders proposal to break up the big banks makes good sense, as does his plan for a financial transactions tax. The latter would both raise a huge amount of money and downsize the industry. (I have some more comments <a href="http://www.huffingtonpost.com/dean-baker/bernie-sanders-hillary-cl_b_9074110.html">here</a>.)<br /><br />Finally, it is worth applying some econ 101 to the Post’s never-ending complaints about Sanders and other politicians not having a plan to deal with its imagined long-term budget crisis. First, much of the projected shortfall stems from the projected growth in health care costs. (The rate of projected health care cost growth has plummeted in the last five years, but this has not affected the Post’s complaints.) <br /><br />First if Sanders succeeds in reining in health care then most of the projected budget gap disappears. However there is still the issue of rising costs due to an aging population. Of course this is not new. We have had a rising ratio of retirees to workers for the last half century. For some reason the Post seems to view it as an end of the world scenario if somewhere in the next two decades we were to raise payroll taxes to cover the costs of longer retirements, just like we did in the decades of the fifties, sixties, seventies and eighties.<br /><br />Fans of basic economics know that it matters hugely more to workers if their before-tax wages keep pace with productivity growth, implying wage gains of 15-20 percent over the course of a decade, than if their payroll taxes are increased by 1-2 percentage points. However the paper endlessly obsesses on the latter, while almost completely ignoring the former. <br /><br />The Post almost never discusses the negative impact that unnecessarily restrictive Fed policy has had on wage growth. It also does its best to ignore the impact on the typical workers’ pay of the policy of selective protectionism that we apply in trade (protected doctors and lawyers, exposed manufacturing workers). <br /><br />The Post gets very upset when political figures like Bernie Sanders raise issues about before tax wage. Instead, it wants workers to fixate on the possibility that they may at some point face a tax increase. And when politicians diverge from the Post’s chosen path, it calls them names. </p> Fri, 29 Jan 2016 07:56:00 -0800 Dean Baker, CEPR 1049790 at http://www.alternet.org Media Economy Election 2016 Media News & Politics Hit pieces washington post Jeff Bezos bernie sanders dean baker 5 of the Biggest Economic Lies Pushed by the Washington Post http://www.alternet.org/economy/5-biggest-economic-lies-pushed-washington-post <!-- 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">Another attempt by DC&#039;s &quot;very serious people&quot; to fan fake generational warfare.</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_354206384.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>The <em>Washington Post's</em> Catherine Rampell devoted her Christmas day <a href="https://www.washingtonpost.com/opinions/where-college-students-should-aim-their-misdirected-rage/2015/12/24/41f19642-aa6c-11e5-9b92-dea7cd4b1a4d_story.html">column</a> to a popular Washington past-time: trying to get young people angry at their parents and grandparents so that they are not bothered by the enormous upward redistribution of income taking place in this country.<br /><br />She begins the piece by telling readers that college students are wasting their time complaining about diversity issues and sensitivity to racism and sexism, then gets to the meat of the story:</p><p>“Older generations have racked up trillions in debt and stuck young people with the bill. This is not just due to expensive wars, unfunded tax cuts, Keynesian financial interventions and the other usual scapegoats for fiscal profligacy.<br /><br />“One of the largest ongoing sources of spending involves huge age-specific transfers: Our politicians are paying off older, higher-voter-turnout Americans in the form of generous benefits that those older people have not paid for and never will. Which means the tab will need to be picked up by someone else — i.e., someone younger. …<br /><br />“For example, a married couple with a single breadwinner who earned the average wage his whole life and turned 65 this year will collect more than six times as much in net Medicare benefits as the couple paid out in taxes. That’s after taking into account both Medicare premiums and other ways the couple could have invested their payroll tax money.<br /><br />“'Invincible’ youngsters are <a href="http://www.forbes.com/sites/scottgottlieb/2014/03/28/how-much-does-obamacare-rip-off-generation-x-we-ran-the-numbers-here-are-the-results/">subsidizing</a> health care for their not-yet-Medicare- eligible elders on the individual insurance market as well. And elsewhere on government balance sheets, spending on the old is crowding out <a href="http://www.urban.org/policy-centers/cross-center-initiatives/kids-context/projects/kids-share-analyzing-federal">spending on the young</a>. At the state level, politicians have responded to swelling pension obligations by <a href="https://www.washingtonpost.com/opinions/catherine-rampell-higher-education-went-from-being-a-public-good-to-a-private-one/2014/05/22/50263a16-e1bd-11e3-9743-bb9b59cde7b9_story.html">disinvesting</a> from public higher education. These funding cuts have then been offset with massive tuition hikes — which fall to, you guessed it, today’s college students.<br /><br />“Fiscal issues of course aren’t the only way that young people have been done wrong by their elders. The warming of our planet and some politicians’ <a href="https://www.washingtonpost.com/news/post-politics/wp/2015/12/22/cruz-says-he-would-withdraw-u-s-from-paris-climate-accord-if-elected/">promises</a> to undermine what small progress has been made to curb climate change also come to mind.”<br /><br />There is so much wrong here that it hard to know where to begin. Let’s start with an easy one, the story of Medicare and Social Security.<br /><br /><strong>Lesson One: Social Security and Medicare are not Unfair to the Young</strong><br /><br />First, Rampell’s comparison is misleading since there are few married couples with single breadwinners turning age 65. Most women have been in the workforce for the last four decades. If we look to the <a href="http://www.urban.org/sites/default/files/alfresco/publication-pdfs/2000378-Social-Security-and-Medicare-Lifetime-Benefits-and-Taxes.pdf">same study</a> referenced by Rampell, and take the more typical case of a couple with an average earner and low earner, we find that the value of the Medicare benefit is roughly four times (rather than six) times the taxes paid.<br /><br />Most of the reason the value of Medicare benefits exceeds the value of the taxes paid is not the generosity of the benefits received by our seniors. The main cause is the fact that we pay our doctors twice as much as doctors in Canada, Germany, and other wealthy countries. We also pay twice as much for our drugs and medical equipment. This is a case of upward redistribution from the rest of us to members of the one percent. (Almost all doctors are in the richest one or two percent of the income distribution.) But rather than talking about how the rich raise the cost of our health care, Rampell wants us to be upset at seniors.<br /><br />If we take Social Security and Medicare taxes together, the story is more balanced, although the ratio of benefits to taxes is still close to two to one, with total lifetime imbalance of $447,000 (in 2015 dollars) for this couple. Before we shed too many tears for today’s young ones, it is worth noting that the same study projects the imbalance of benefits and taxes to rise to more than $1.1 million (in 2015 dollars) for today’s 25-year-olds.<br /><br />If that is hard to understand, imagine we told our adult children to give us $100,000 to support our retirement and then to get that money back from their children, who will in turn get the money back from their children, etc. This is the basic story of Social Security and Medicare. If this greatly troubles you then you should be extremely mad at the generation who lived through the Great Depression and fought World War II. They really made out like bandits from these programs because they paid very little money in taxes compared to the benefits collected, as can be seen in this same study.<br /><br />I could go on to mention that many older people live with their children and grandchildren. How does cutting benefits in that story help the young? Social Security also provides survivors and disability benefits that often help the young, but let’s move on.<br /><br /><strong>Lesson Two: The Affordable Care Act Redistributes from the Healthy to the Less Healthy, not the Young to the Old</strong><br /><br />Rampell gives yet again the long-deflated “young invincible” story about how the Affordable Care Act (ACA) relies on healthy young people to pay premiums to support the cost of providing care to older less healthy people. While there is a modest skewing of premiums against the young, the main story of the ACA is that it relies on the healthy of all ages to subsidize the less healthy.<br /><br />The Kaiser Family Foundation did an <a href="http://kff.org/health-reform/perspective/the-numbers-behind-young-invincibles-and-the-affordable-care-act/">analysis</a> two years ago that showed that even an extreme skewing by age only raised the cost of the program by around 2 percent. The big problem for the ACA is if there is a skewing by health conditions.<br /><br />It is important to recognize that there are a large number of people of all ages with near zero health care expenditures. The older people healthy people in the exchanges (ages 55 to 64) pay premiums that average three times as much as the premiums paid by younger people. If the healthy people in both age groups get almost nothing back in benefits, the older healthy people are paying three times as much to the support the ACA as the young people. Should we shed more tears for the twenty somethings?<br /><br /><strong>Lesson Three: Our Children Will Only be Hurt by the Debt Because the Washington Post and Other Elite Types Will Use it As An Excuse to Cut Necessary Spending</strong><br /><br />Okay twenty somethings, how do you know about our massive debt? Yeah, it’s more than $18 trillion, can you feel it?<br /><br />You surely can’t feel it from its economic impact. Interest rates in the economy are at their lowest level in more than half a century. Thirty year mortgage rates are hovering near four percent. They were generally in the <a href="http://www.federalreserve.gov/datadownload/Output.aspx?rel=H15&amp;series=4f2a3bbeb30b5b4fbcb019a11a513fec&amp;lastObs=&amp;from=&amp;to=&amp;filetype=csv&amp;label=include&amp;layout=seriescolumn">six percent range</a> back at the end of the 1990s when we were running budget surpluses and making plans to pay off the debt. Interest rates on car loans, student loan debt, and credit card debt are correspondingly lower today.<br /><br />How about the raging inflation caused by the debt? Well, the Federal Reserve Board has been working hard to raise the inflation rate back towards its 2.0 percent target.<br /><br />What about the enormous amount of money that has to be diverted from other spending to meet the interest burden? Current interest costs, net of payments from the Federal Reserve Board, come to <a href="https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/45010-Outlook2014_Feb_0.pdf">less than one percent of GDP</a>. By comparison, the interest burden was more than three percent of GDP in the early 1990s. (That’s what lower interest rates will do.) If a twenty something claims that they can feel the economic impact of the debt, it is time for some serious drug testing.<br /><br />Now there is clearly a political impact. The Washington Post, and other Very Serious People, has hyped the debt endlessly. They have raised fears over the debt to prevent spending that would both help boost the economy back to full employment and meet our needs in areas like education, infrastructure, research and development, and addressing global warming. The damage done by the Very Serious People’s scare stories about the deficit is in fact a very big deal. But it is a bit over the top to blame this one on the older generation as an age group, even if most of the Very Serious People gang is older.<br /><br />L<strong>esson Four: We Hand Our Children a Whole Economy, not Just a Government Debt</strong><br /><br />One of the most bizarre inventions of the Very Serious People is the idea that somehow generational issues can be measured by government indebtedness and taxation. We expect people to get wealthier through time as technology advances, and we become better educated and have a better and more advanced infrastructure and capital stock. The well-being of our children and grandchildren will depend on the whole economy and society we hand them, the tax burden associated with the government debt or even the cost of Social Security and Medicare benefits is a trivial part of the picture.<br /><br />If that sounds hard to understand, let’s try a simple thought experiment. Suppose we snap our fingers and eliminate completely every tax burden for the young associated with us old-timers. That means we not only get rid of the government debt, but we also zero out their Social Security and Medicare tax liability. Sounds great, we’ve really done right by our young now.<br /><br />Okay, now let’s also get rid of all the technological breakthroughs of the last thirty five years. There are no smartphones or even cell phones. There is no Internet and only the most clunky of personal computers. (Apple wasn’t even cool back then.) Music is still available only on cassettes and vinyl records. Life expectancy is much shorter as we don’t have many of the treatments that have been developed in the last three decades. And, there is no Uber.<br /><br />So, are our kids better off now? I doubt most people would say yes, especially not the twenty somethings.<br /><br />If we want to seriously discuss whether we are making things better or worse for our kids then we have to ask about the whole economy and society we pass on to them. When we force many of our kids to grow up with parents who are unemployed and/or in poverty because the Very Serious People won’t let us spend the money necessary to make them employed and let them have decent jobs, this is a huge issue of generational equity. The same applies to inadequate spending on infrastructure and education. Also, messing up the planet with greenhouse gas emissions is a really huge deal (addressed more below). But none of these factors gets picked up in the national debt.<br /><br />There is one more point that the Very Serious People need to have beaten into their heads. Tax dollars are only one way in which the government pays for things. We pay for a large and growing number of items with government granted monopolies in the form of patents and copyrights. These monopolies raise the cost of everything from drugs and medical equipment to seeds and recorded music by many hundreds of billions of dollars above the free market price.<br /><br />From the standpoint of our children, it makes no difference if we impose an $80,000 tax on a drug like Sovaldi, and use the money to finance drug research, or if we give Gilead Sciences a patent monopoly that allows it to charge a price that is $80,000 above the free market price. Media outlets like the Post (which gets lots of advertising dollars from pharmaceutical companies) have been very effective in focusing attention exclusively on tax dollars and ignoring all the other ways in which the government directs money and resources. (On a related matter, do you recall any discussion of the <a href="http://cepr.net/blogs/beat-the-press/holiday-season-is-time-for-compassion-for-billionaires-the-case-of-jeff-bezos-and-amazon">$4 billion</a> given to Jeff Bezos by exempting Internet retailers from the requirement to collect the same sales tax as their brick and mortar competitors?)<br /><br /><strong>Lesson Five: Global Warming Threatens the Planet, but It Is the Fault of the Rich, not Older Generations</strong><br /><br />Rampell is absolutely right that young people should be mad about global warming, but absolutely wrong about the direction of blame. The science on global warming has been compelling for two decades. Yet, media outlets like the Washington Post have treated deniers like House Speaker Paul Ryan or the Republican crop of presidential candidates as serious people.<br /><br />These papers know how to go after people when they are not telling the truth. Think of how they went after Bill Clinton to get to the bottom of his sexual relationship with Monica Lewinski. They asked him and his staff day after day about the details and the inconsistencies in Clinton’s denials. They should go after top Republicans with the same vigilance on global warming; writing stories every day about House Speaker Paul Ryan continues to deny science that is accepted by virtually every expert in the field. They should point out to readers that the man is either an incredible fool or an outright liar. No media outlet ever does this, because hey, that would be partisan.<br /><br />Sorry Ms. Rampell, this baby boomer is not taking the blame for the failings of your wealthy employer. The Post and other major news outlets have enormously failed the country in their coverage of global warming, but like the overwhelming majority of people of my generation, I don’t own a news outlet. So if you want to be honest in directing anger, use your next column to tell the world what an awful person your employer is. We look forward to that one.</p><p> </p> Sat, 26 Dec 2015 05:17:00 -0800 Dean Baker, Beat the Press 1047965 at http://www.alternet.org Economy Economy Election 2016 News & Politics The Right Wing dean baker Washington Post columnists Social Security generational warfare federal debt generational warefare Bernanke's Memoir of 2008 Meltdown Shows Fed's Power Is Even Bigger Than He Says http://www.alternet.org/economy/bernankes-memoir-2008-meltdown-shows-feds-power-even-bigger-he-says <!-- 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 Federal Reserve could have saved Lehman Brothers. </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_locked_door.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Ben Bernanke just released his memoir which includes his account of the events around the financial crisis. <a href="http://www.nytimes.com/2015/10/06/business/dealbook/in-ben-bernankes-memoir-a-candid-look-at-lehman-brothers-collapse.html?ref=international">According to Andrew Ross Sorkin</a>, Bernanke claims the decision to not save Lehman in the fall of 2008 was not really a decision. Bernanke claims that the Fed did not have the ability to save Lehman. This is not true. Since the Fed has essentially a limitless ability to lend money, it surely could have provided enough loans at below market interest rates, for a long enough period of time, that Lehman would eventually have been a viable bank.</p><p>Sorkin points to $200 billion in losses suffered by Lehman creditors. This is comparable to the sums lent to both AIG and Fannie and Freddie (combined) at the time they faced insolvency, so getting enough money to at least temporarily patch any holes would clearly have been doable. In October of 2008, the assets held by Lehman were near their lowest levels. (That's not based on an analysis of specific assets, just looking at house prices and the price of other assets.)</p><p>Suppose that the Fed had lent Lehman the money need to meet all its immediate obligations and gave the bank Timothy Geithner's "no more Lehmans" guarantee. This was a commitment that big banks would not be allowed to fail. Geithner repeats it endlessly in his autobiography. This would have allowed the bank to continue to operate and presumably make around $3 billion a year in profit (its pre-crisis level) on its ongoing business.</p><p>More importantly, the forbearance would have allowed the price of Lehman's assets to recover. In the years since 2008-2009, the stock market has more than doubled. Interest rates on Baa bonds (the lowest investment grade) have fallen by roughly 40 percent, implying a 25-30 percent rise in the price of long-term bonds. Even riskier debt, like many of the assets held by Lehman, has seen an even larger increase in price.</p><p>Lehman had roughly $600 billion in assets at the time of its bankruptcy. If its assets rose in value by just 30 percent from that point and it made $20 billion in operating profit over the last seven years, it would be able to fill a $200 billion hole, meaning that it would have been restored to solvency.</p><p>Of course the Fed is not supposed to lend to an insolvent bank under the law, but Citigroup and Bank of America were both almost certainly insolvent in 2008-2010 and they continued to receive support from the Fed. Furthermore, as a practical matter, who was going to stop the Fed from lending to an insolvent bank? Would someone file a lawsuit? It's not clear who would have standing and even if they did, the suit would probably drag on for years before any court tried to interfer with a bailout. At that point it likely would not have been necessary.</p><p>So the moral of the story is that the Fed could have rescued Lehman. It could have shoveled huge amounts of money to the bank at below market interest rates and allow Lehman to stay in business even though it was insolvent. At the end of the process, the government could show a profit on the bailout (it would get back more in interest from Lehman than it cost the government to borrow) and then the Washington Post and other news outlets, along with political figures like Timothy Geithner, could boast about how we made a profit on the bailout and laugh at the stupid people who opposed it.</p><p> </p> Thu, 08 Oct 2015 09:53:00 -0700 Dean Baker, Beat the Press 1043732 at http://www.alternet.org Economy Economy News & Politics ben bernanke too big to fail lehman brothers 208 financial crisis How Big Pharma Is Price-Gouging You http://www.alternet.org/economy/how-big-pharma-price-gouging-you <!-- 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 pay roughly twice as much for our drugs as the average for other wealthy countries. </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_233165731-edited.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>The United States stands out among wealthy countries in that we give drug companies patent monopolies on drugs that are essential for people’s health or lives and then allow them to charge whatever they want. Every other wealthy country has some system of price controls or negotiated prices where the government limits the extent to which drug companies can exploit the monopoly it has given them. The result is that we pay roughly twice as much for our drugs as the average for other wealthy countries. This additional cost is not associated with better care; we are just paying more for the same drugs.</p><p>This is not an issue about the free market. The free market doesn’t have patent monopolies. The monopoly power provided by a patent is a government policy to promote innovation. There are problems with patent monopolies in many areas, but nowhere is the issue worse than with prescription drugs.</p><p>Patent protected drugs are often essential for people’s health or even their lives. Allowing a drug company to have a monopoly where it can charge whatever it can force the individual, or more typically the insurer or the government, to pay makes little sense. This is like negotiating the pay of firefighters at the point where they show up at your burning house with your family inside. This would give us much worse fire service and many very wealthy firefighters.</p><p>A monopoly that allows drug companies to sell their drugs at prices that can be hundreds of times the free market price has all the problems economics predicts when governments interfere with the market. Drug companies routinely mislead doctors and the public about the safety and effectiveness of their drugs to increase sales. The cost in terms of bad health outcomes and avoidable deaths runs into the tens of billions of dollars every year.</p><p>Drug companies also spend tens of millions on campaign contributions and lobbying to get even longer and stronger patent protection. The pharmaceutical industry is one of the main forces behind the Trans-Pacific Partnership, and its demands for stronger patent protections are one of the main obstacles to reaching an agreement with the other countries.</p><p>We don’t need patent monopolies to support research. We already spend more than $30 billion a year financing research through the National Institutes of Health. Everyone, including the drug companies, agrees that this money is very productive. We could double or triple this spending and replace the patent supported research done by the drug companies. With the research costs paid upfront, most drugs would be available for the same price as a bottle of generic aspirin.</p><p>While the measures proposed by Hillary Clinton and earlier Bernie Sanders don’t go this far, they are a big step in the right direction.</p><p><em>This column originally appeared in the <a href="http://www.nyt.com">New York Times</a>.</em></p> Thu, 24 Sep 2015 07:49:00 -0700 Dean Baker, CEPR 1042931 at http://www.alternet.org Economy Economy big pharma monopoly pharmaceuetical companies patent drugs Jeb Bush's and Bill Clinton's Boasts of Economic Growth Based on Market Bubbles That Burst http://www.alternet.org/economy/jeb-bushs-and-bill-clintons-boasts-economic-growth-based-market-bubbles-burst <!-- 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 good times rolled until they crashed and burned.</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/jeb_bush_0.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Paul Krugman <a href="http://krugman.blogs.nytimes.com/2015/07/29/state-growth-versus-national-growth/?module=BlogPost-Title&amp;version=Blog%20Main&amp;contentCollection=Opinion&amp;action=Click&amp;pgtype=Blogs&amp;region=Body">rightly mocks</a> Jeb Bush for taking credit for the strong growth in Florida during his tenure as governor.</p><p>As Krugman points out, the reason for the strong growth was that Florida had one of the worst housing bubbles in the country. Its collapse gave Florida one of the worst downturns in the country. (I had <a href="http://www.politifact.com/florida/statements/2015/jun/03/jeb-bush/jeb-bush-says-13-million-jobs-were-created-florida/">made the same point</a> a couple weeks earlier to a reporter fact-checking Bush's claim on growth.) The weak banking regulation that facilitated the bubble is not the sort of thing you would think the Bush campaign wants to boast about.</p><p>But it is not just Governor Bush who is prone to boasting about bubble driven growth.</p><p>The boom in the last four years of the Clinton presidency was largely driven by the stock bubble that developed in these years, with price to earning ratio rising to levels not seen since the 1920s. The collapse of this bubble gave us the recession in 2001. While this downturn was very mild if measured by GDP, from the standpoint of the labor market it was quite severe. We did not get back the jobs lost in the downturn until January of 2005. Until the more recent recession this was the longest period without job growth since the Great Depression.</p><p>The interesting lesson from the 1990s boom was that the economy could sustain much lower rates of unemployment than had been previously believed. The unemployment rate hit 4.0 percent as a year-round average in 2000, most economists had previously argued that the unemployment rate could not fall much below 6.0 percent without causing spiraling inflation. This indicated that as a supply side matter, the economy could support the high levels of employment/low levels of unemployment of the late 1990s.</p><p>However, the problem is the demand side. The channels to create the demand needed to get to low rates of unemployment — either larger budget deficits or lower trade deficits caused by a lower valued dollar — are blocked politically. (We could also look to reduce work hours through work-sharing, more vacation, paid family leave, etc.) This means that we may not see a strong labor market, like the one of the late 1990s, for some time. </p><p>But the key point here is that both parties are happy to take credit for bubble driven growth. Maybe there can be a quid pro quo where Jeb Bush will stop taking credit for the growth generated by the Florida housing bubble and the Democrats stop taking credit for the <a href="http://www.cepr.net/publications/reports/short-term-gain-for-long-term-pain-the-real-story-of-rubinomics">bubble driven growth</a> of the Clinton years.</p>  <p> </p> Wed, 29 Jul 2015 10:44:00 -0700 Dean Baker, Beat the Press 1040095 at http://www.alternet.org Economy Economy Election 2016 Hard Times USA News & Politics dean baker economic growth and market bubbles How NPR Is Doing Right-Wing's Economic Dirty Work on Debt http://www.alternet.org/economy/how-npr-doing-right-wings-economic-dirty-work-debt <!-- 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&#039;s no crisis. A progressive economist explains.</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_cut_taxes.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Billionaire Peter Peterson is spending lots of money to get people to worry about the debt and deficits rather than focus on the issues that will affect their lives.</p><p>National Public Radio is doing its part to try to promote Peterson's cause with a Morning Edition <a href="http://www.npr.org/2015/05/28/410135885/the-future-president-will-need-to-wrestle-with-debt-from-the-past">piece</a> that began by telling people that the next president "will have to wrestle with the federal debt." This is not true, but it is the hope of Peter Peterson that he can distract the public from the factors that will affect their lives, most importantly the upward redistribution of income, and obsess on the country's relative small deficit. (A larger deficit right now would promote growth and employment.)</p><p>According to the<a href="http://www.cbo.gov/sites/default/files/cbofiles/attachments/45069-2015-01-BudgetDataProjections2.xlsx">projections from the Congressional Budget Office</a>, interest on the debt will be well below 2.0 percent of GDP when the next president takes office. This is lower than the interest burden faced by any pre-Obama president since Jimmy Carter. The interest burden is projected to rise to 3.0 percent of GDP by 2024 when the next president's second term is ending, but this would still be below the burden faced by President Clinton when he took office.</p><p>Furthermore, the reason for the projected rise in the burden is a projection that the Federal Reserve Board is projected to raise interest rates. If the <a href="http://www.cepr.net/publications/reports/budgetary-implications-of-higher-federal-reserve-board-interest-rates">Fed kept interest rates low</a>, then the burden would be little changed over the course of the decade. Of course the Fed's decision to raise interest rates will have a far greater direct impact on people's lives than increasing interest costs for the government. (The president appoints 7 of the 12 voting members of the Fed's Open Market Committee that sets interest rates.)</p><p>The reason the Fed raises interest rates is to slow the economy and keep people from getting jobs. This will prevent the labor market from tightening, which will prevent workers from having enough bargaining power to get pay increases. In that case, the bulk of the gains from economic growth will continue to go to those at the top end of the income distribution.</p><p>The main reason that we saw strong wage growth at the end of the 1990s was that Alan Greenspan ignored the accepted wisdom in the economics profession, including among the liberal economists appointed to the Fed by President Clinton, and allowed the unemployment rate to drop well below 6.0 percent. At the time, almost all economists believed that if the unemployment rate fell much below 6.0 percent that inflation would spiral out of control. The economists were wrong, inflation was little changed even though the unemployment rate remained below 6.0 from the middle of 1995 until 2001, and averaged just 4.0 percent for all of 2000. (Economists, unlike custodians and dishwashers, suffer no consequence in their careers for messing up on the job.)</p><p>Anyhow, if the Fed raises interest rates to keep the labor market from tightening as it did in the late 1990s, this would effectively be depriving workers of the 1.0-1.5 percentage points in real wage growth they could expect if they were getting their share of productivity growth. This is like an increase in the payroll tax of 1.0-1.5 percentage points annually. Over the course of a two-term president, this would be the equivalent of an 8.0-12.0 percentage point increase in the payroll tax.</p><p>That would be a really big deal. But Peter Peterson and apparently NPR would rather have the public worry about the budget deficit.</p><p>It is also worth noting that the five think tanks mentioned in this piece that prepared deficit plans were paid by the Peter Peterson Foundation to prepare defict plans. They did not do it because they considered it the best use of their time.</p><p> </p> Thu, 28 May 2015 08:18:00 -0700 Dean Baker, Beat the Press 1037016 at http://www.alternet.org Economy Economy Election 2016 Labor Media News & Politics The Right Wing media criticism pete peterson Wall Street debt scares Republican federal budget cuts dean baker Bernie Sanders' Bold Idea to Make Wall Street Pay http://www.alternet.org/economy/bernie-sanders-bold-idea-make-wall-street-pay <!-- 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">Why a financial transactions tax is good policy. </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/sensanderscitunited_590.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Last week, Bernie Sanders, the Senator from Vermont and only announced challenger to Hillary Clinton for the Democratic nomination, took a strong stand for everyday people. He proposed a financial transactions tax (FTT), effectively a Wall Street sales tax, and to use the revenue to make public colleges tuition free.</p><p>While making college affordable to low and middle income families is important, the proposal for an FTT is a real game changer. There is no single policy that would have anywhere near as much impact in reforming the financial sector. An FTT would effectively impose a sales tax on stocks and other financial assets, so that speculators have to pay a tax on their trades, just like people who buy shoes or clothes.</p><p>There are three points people should understand about an FTT. The first is that it can raise an enormous amount of money. An FTT could be imposed at different rates. Sanders proposed following the rate structure in a bill put forward by Minneapolis Congressman Keith Ellison. Eleven countries in the European Union are working to implement a set of FTTs that would tax stock trades at a rate of 0.1 percent and trades of most derivative instruments at the rate of 0.01 percent.</p><p>Extrapolating from a <a href="http://www.diw.de/documents/publikationen/73/diw_01.c.502746.de/diwkompakt_2015-096.pdf" target="_hplink">recent analysis</a> of the European proposal, a comparable tax in the United States would raise more than $130 billion a year or more than $1.5 trillion over the next decade. This is real money; it dwarfs the sums that have dominated most budget debates in recent years. For example, the Republicans had been trying to push through cuts to the food stamp program of $40 billion over the course of a decade. The sum that can be raised by this FTT proposal is more than 30 times as large. The revenue from an FTT could go far toward rebuilding the infrastructure, improving the health care system, or paying for college tuition, as suggested by Senator Sanders.</p><p>The second point is that Wall Street will bear almost the entire cost of the tax. The financial industry is surely already paying for studies showing the tax will wipe out the 401(k)s held by middle income families. This is nonsense. Not only is the size of the tax small for anyone not flipping stock on a daily basis, <a href="http://www.imf.org/external/pubs/ft/wp/2011/wp1154.pdf" target="_hplink">research indicates</a> that most investors will largely offset the cost of the tax by trading less.</p><p>Most research shows that trading volume falls roughly in proportion to the increase in transaction costs. This means that if an FTT doubles the cost of trading then the volume of trading will fall by roughly 50 percent, leaving total trading costs unchanged. Investors will pay twice as much on each trade, but have half as many trades. Since investors don't on average make money on trades (one side might win, but the other loses), this is a wash for the investor.</p><p>While most middle income people don't directly trade the money in their retirement accounts, they do have people who manage these funds. The research means that the fund managers will reduce their trading, so that the total costs of transactions that are passed on to the investor remain roughly constant. This means that the financial industry will bear almost the entire cost of the tax in the form of reduced trading volume.</p><p>This gets to the last point: a smaller financial industry is a more efficient financial industry. The purpose of the financial industry is to allocate money from savers to companies that want to finance new investment. As the industry has exploded in size over the last four decades there is no reason to believe that it has gotten better in serving this basic function. In fact, the stock bubble at the end of the 1990s and the housing bubble in the last decade might suggest that it has gotten worse.</p><p>A <a href="http://www.bis.org/publ/work381.pdf" target="_hplink">study</a> from the Bank of International Settlements and <a href="https://www.imf.org/external/pubs/ft/sdn/2015/sdn1508.pdf" target="_hplink">more recent research</a> from the International Monetary Fund find that a bloated financial sector slows growth. An oversized financial sector pulls resources away from more productive sectors of the economy. People who could be engaged in biological research or developing clean technologies are instead employed on Wall Street designing computer programs to beat other traders by a microsecond to garner profits at their expense. An FTT will make much of this activity unprofitable, encouraging people to turn to more productive work.</p><p>In short, an FTT is a great way to raise large amounts of money to meet important public needs. It will come almost entirely at the expense of the financial industry and should strengthen the economy. We now have one presidential candidate who is prepared to support a strong FTT. Are there others?</p> Tue, 26 May 2015 07:57:00 -0700 Dean Baker, The Huffington Post 1036884 at http://www.alternet.org Economy Economy Election 2016 News & Politics bernie sanders election 2016 financial transactions tax ftt wall street Whoa, 2.8 Million New Jobs? How Guaranteed Paid Sick Days Could Seriously Improve the Economy http://www.alternet.org/labor/how-guaranteed-paid-sick-days-could-boost-us-job-growth <!-- 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">With unemployment still holding back the economy, reducing the average hours of those with jobs can increase employment.</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/franklinbandage.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>After President <a href="http://fortune.com/2015/01/20/obama-state-of-the-union-2015-live/">Obama’s State of the Union Address</a>, the discussion has largely focused on his tax proposals. While these are important measures, two other areas he addressed raise issues that will have at least as many consequences.</p><p>Starting with the positive, Obama called on Congress to pass legislation for paid sick days, guaranteeing that all workers have the option to take at least seven days a year off from work due to illness or the need to care for an ill family member. This one should be pretty straightforward.</p><p>As two-income households are now the norm for couples, and single parents raise close to 40% of U.S. kids, many workers will need time off from their jobs to take care of sick family members, in addition to the occasions where their own illness keeps them from working. In these situations, workers shouldn’t have to worry about missing a day of pay or possibly losing their job.</p><p>Paid sick days is hardly an alien concept. Every other wealthy country has required employers to provide paid sick days for decades. Several state and local governments now do the same. In fact, more than half of the work force (largely the better-paid half) already has paid sick days.</p><p>Employers have learned to live with allowing their workers paid sick days. Invariably, they report that the cases of abuse are rare. Most people don’t take half the days to which they are entitled. And, as a practical matter, what employer wants someone running around the office sneezing on their co-workers? Or better yet, on their customers’ food? This one is just common sense.</p><p>There is another aspect to paid sick days or any paid time off that is generally overlooked. With unemployment still holding back the economy (or “secular stagnation” to use the now fashionable term), reducing the average hours of those with jobs can increase the number of jobs.</p><p>To take some simple arithmetic, if paid sick days or other forms of leave reduced average hours by 2%, this should open the door for 2%, or 2.8 million, more workers to be hired. In reality, the relationship will never be this simple, but the basic point holds. Germany has full employment not because its economy grew more than America’s, but partly because its workers put in 20% fewer hours.</p><p>If paid sick days are the good part of the State of the Union, President Obama’s renewed calls for fast-track trade authority is the bad part. The trade deals that are on the table now are not about reducing trade barriers and expanding trade. With few exceptions, tariffs have already been reduced to near zero and most other formal trade barriers have already been eliminated.</p><p>Rather than being about trade, these “trade” deals are a mechanism through which our largest corporations can get business-friendly regulations that would never have a chance in Congress. For example, three years ago the Stop On-line Piracy Act (SOPA) got beaten back due to massive grassroots opposition. Since the entertainment industry knows they may never get SOPA through Congress, they will try to get key parts of it in these trade deals.</p><p>The same is true of Pharma’s push for higher drug prices here and elsewhere; the financial industry’s efforts to evade Dodd-Frank and similar regulation, and the oil industry’s efforts to stop fracking bans and other environmental regulation.</p><p>Studies have shown that trade deals like the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Pact would have a minuscule <a href="http://www.cepr.net/documents/publications/TPP-2013-09.pdf"><strong>impact on growth </strong></a>or <a href="http://www.epi.org/publication/trade-pacts-korus-trans-pacific-partnership/"><strong>jobs</strong></a> and are simply backdoor tools for allowing business to get special interest rules that they could not get approved otherwise.</p><p>Trade deals like the <a href="http://www.epi.org/publication/trade-pacts-korus-trans-pacific-partnership/"><strong>Trans-Pacific Partnership</strong></a> and the Trans-Atlantic Trade and Investment Pact are simply backdoor tools for allowing business to get special interest rules that they could not get approved otherwise.</p><p>It is unfortunate that President Obama had to ruin his State of the Union Address with his appeal for these pacts.</p> Thu, 29 Jan 2015 10:36:00 -0800 Dean Baker, AlterNet 1031085 at http://www.alternet.org Labor Labor employment The Biggest Economic Myths, Debunked http://www.alternet.org/biggest-economic-myths-debunked <!-- 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">Can we please stop repeating these myths?</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_192890837_0.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>With the holiday season upon us, the time for end-of-year lists is fast approaching. To beat the rush, today I give my list of the top dead and enduring myths of 2014.</p><p>The good news is that two myths that caused great confusion over the last several years are now headed to the trash bin of history. While many prominent pundits may still repeat them to demonstrate that prominent pundits really don't have to care about reality, everyone in the reality-based community now knows them to be nonsense.</p><p>The first is the myth of the young invincibles and Obamacare. The story was that the success of Obamacare depended on getting healthy young people to sign up. Supposedly we needed the healthy young'uns to subsidize the rest of the population.</p><p>This led to endless stories about whether young people were signing up for insurance. The Obama administration made special outreach efforts to the young. In an effort to undermine the program, the right-wing group <a href="http://www.freedomworks.org/content/freedomworks-announces-%E2%80%9Cburn-your-obamacare-card%E2%80%9D-campaign-resist-compulsory-health-care-law" target="_hplink">Freedom Works</a> even sponsored Obamacare-card-burning rallies (there are no Obamacare cards, so they had to create them) in order to discourage young people from getting insurance.</p><p>The problem with the story is that we really didn't need the subsidy from healthy young people to make the program work. While healthy young people subsidize less-healthy people in the program, healthy older people subsidize them even more. The ratio of premiums of the people in the oldest age group (55 to 64) to premiums of the youngest is roughly 3 to 1. And plenty of older people, just like younger people, are in good health and have low medical bills.</p><p>This means that if the age distribution of the enrollees skewed toward older people, it really didn't matter much, as the Kaiser Family Foundation showed in a <a href="http://kff.org/health-reform/perspective/the-numbers-behind-young-invincibles-and-the-affordable-care-act/" target="_hplink">short study</a>. It makes a much bigger difference if there is a skewing toward people in bad health.</p><p>The other big myth that got killed in 2014 was that we needed to fear deflation. This was not only silly -- sorry, folks, but there is no magic to crossing zero -- but it had important policy implications. The deflation-scare story implied that as long as inflation was positive, we didn't have to worry.</p><p>In fact, the problem of low inflation makes it difficult to boost the economy through monetary policy, since central banks can't have negative nominal interest rates. It also makes it harder for real wages to adjust, since workers rarely get cuts in nominal pay. This is true even at low positive inflation rates. The problem gets worse if the inflation turns negative, but that is because the inflation rate has gotten lower, not because there is any special importance to zero.</p><p>Some of us had been <a href="http://www.cepr.net/index.php/blogs/beat-the-press/deflating-the-japanese-horror-story" target="_hplink">trying</a> to make this point since the early days of the downturn, but the pundits and many economists who should know better kept expressing concerns about deflation. The good news in 2014 was that the IMF <a href="http://blog-imfdirect.imf.org/2014/03/04/euro-area-deflation-versus-lowflation/" target="_hplink">weighed in</a> to point out that the problem is "lowflation," an inflation rate that is too low.</p><p>So now it is official. We all should be very worried about the low inflation rates in the Eurozone, Japan, the United States, and elsewhere. If the inflation rate falls further, that is worse news, but things don't just become bad when the inflation rate turns negative.</p><p>Unfortunately, many of our great national myths have survived 2014. We still have the story that the financial crisis, as opposed to the collapse of the housing bubble, caused the Great Recession. The point here should be straightforward. The financial sector is working again, but we are still far from having recovered. That's because we have nothing to replace the demand that had been generated by the housing bubble.</p><p>This matters both to understanding policy going forward and to assigning blame. Financial crises can get complicated. The housing bubble was pretty damn simple, and almost all our economists blew it.</p><p>Along the same lines, we continue to see the "second Great Depression" myth. This is very important for those in policy positions, because it allows them to say that no matter how bad things are, at least we avoided a second Great Depression.</p><p>Sorry, folks, but we know how to get out of a depression. It's called spending money. Even if the dominoes had been allowed to fall and all the Wall Street banks had collapsed, we still could have picked up the pieces and avoided a depression. And we would be freed of the albatross of a bloated financial sector.</p><p>Then we have the twin myths of the mystery of a weak recovery and slow wage growth. Every week or two we will get an in-depth story in a major news outlet asking why we still haven't recovered from the downturn or why wages aren't growing.</p><p>This one goes right back to the collapsed housing bubble. We need some source of demand to replace the $1 trillion or so in construction and consumption demand that we lost when the $8-trillion bubble burst.</p><p>Demand doesn't come from heaven. It comes from consumption, investment, government spending, or net exports. No one has a story as to why we should expect any of these components of demand to be higher than they currently are. Thus the only mystery is why anyone thinks there is a mystery.</p><p>And the story with wage growth is equally unmysterious. Wages will start growing when the labor market gets an awful lot tighter than it is now, given that we are still close to 7 million jobs below trend.</p><p>We should be glad that we put to death two very silly myths about the economy and economic policy in 2014. Let's see if we can kill these other four fantasies in 2015.</p> Tue, 16 Dec 2014 07:17:00 -0800 Dean Baker, AlterNet 1028775 at http://www.alternet.org News & Politics economy Why the Love Affair Between Government and Big Finance Must End http://www.alternet.org/economy/why-love-affair-between-government-and-big-finance-must-end <!-- 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 in America promotes little more than inequality and waste.</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/brokenheart.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>In the crazy years of the housing boom the financial sector was a gigantic cesspool of excess and corruption. There was big money in pushing and packaging fraudulent mortgages. The country paid a huge price for the financial sector's sleaze.</p><p>Unfortunately, because of the Obama administration's soft-on-crime approach to the bankers who became rich in the process, the industry is still a cesspool of excess and greed. Just to be clear, <a href="http://www.cepr.net/index.php/blogs/beat-the-press/fraudulent-subprome-auto-loans-the-cost-of-obamas-soft-on-crime-policy" target="_hplink">knowingly issuing and packaging a fraudulent mortgage is a crime,</a> the sort of thing for which people go to jail. But thanks to the political power of the Wall Street, none of them went to jail, and in fact they got to keep the money.</p><p>Since the penalties for ripping off people are trivial to non-existent, the financial sector finds this to be a much more profitable line of business than actually providing financial services. The <em>New York Times</em> <a href="http://dealbook.nytimes.com/2014/07/19/in-a-subprime-bubble-for-used-cars-unfit-borrowers-pay-sky-high-rates/?ref=business" target="_hplink">recently reported</a> on the boom in the subprime market for auto loans featuring many of the same abusive practices we saw in the subprime mortgage market during the bubble years. Lenders are slapping on extra fees, changing the terms after contracts are signed, and doing all the other fun things we have come to expect from leaders in finance. The used car industry was sufficiently powerful that it was able to gain an exemption from being covered by the Consumer Financial Protection Bureau.</p><p>We could look to contain these abuses with better regulation, but there is an easier route: competition. Senator Elizabeth Warren and others have proposed re-establishing a postal banking system. The Postal Service used to provide many basic banking services and postal banks still exist in many European countries. It should be a simple enough matter to re-establish such a system, run on a profit-making basis, that would provide basic services to low and moderate income households.</p><p>Such a system would allow people to get a loan to buy a car at a fair rate with a normal contract, not some convoluted product designed by a Harvard M.B.A. to fool people who don't spend their lives reading contracts. A postal bank could offer basic checking and saving accounts and debt and credit cards, which would not come with punitive overdraft fees to gouge people who are down on their luck or made a mistake in their accounting. The financial industry would still be able to hawk their own loans and accounts, so that people who want to be ripped off would still have the option to do business with the private sector.</p><p>There is a similar story with retirement accounts. There are responsible firms like Vanguard, which try to minimize fees and do not shove people into trading accounts that are almost sure losers for them, but many people blow much of their savings on the expenses that financial firms charge them to handle their accounts. In many cases people lose more than a third of their earnings on trading and management fees.</p><p>Here also the government can provide an enormous service by offering an alternative account that people would have the option to use. Ideally this would be done at the federal level, but states could also offer similar accounts, as California and Washington State are both considering. If an account's annual fees can be held to a 0.3-0.5 percent range, as opposed to the 1.5-2.0 percent levels charged by some funds, it can add more than 20 percent to a worker's savings at retirement.</p><p>The third place where the government can play a useful in finance, it is already on the job. This is in providing a secondary market for home mortgages. Since the mixed public-private versions of Fannie Mae and Freddie Mac effectively went bankrupt in 2008, they have essentially operated as publicly owned companies. The vast majority of mortgages issued in the years since the crash have been purchased in the secondary market by Fannie and Freddie.</p><p>Even though these companies are now operating effectively and efficiently, the leadership of both parties is anxious to dismantle them. The preferred option is a public-private mix, as proposed in a bill by <a href="http://www.nationalmortgagenews.com/news/origination/cheat-sheet-details-from-the-johnson-crapo-gse-bill-1041363-1.html" target="_hplink">Senators Crapo and Johnson</a>. This bill would give us added costs from private sector profits and recreate the moral hazard problem that led the public-private versions of Fannie and Freddie to go bankrupt. Once again the private sector would stand to profit by passing off risk to the government.</p><p>The push for privatizing Fannie and Freddie takes bizarre forms in the nation's capital. The idea of public corporations operating efficiently, and more importantly profits being foregone by the financial industry, is too much for the politicians and pundits to tolerate.</p><p>We have been told that these corporations are responsible for depressed housing prices, even though house prices are now somewhat above their trend level. Supposedly the uncertainty about the future of the mortgage giants is <a href="http://www.washingtonpost.com/opinions/catherine-rampell-congress-is-keeping-the-housing-market-on-hold/2014/05/12/c0fe1eda-da00-11e3-8009-71de85b9c527_story.html" target="_hplink">dissuading construction</a>, even though any development could be started, completed, and sold off long before any changes in mortgage system could possibly take effect. Somehow the public status of Fannie and Freddie is supposed to be impeding the recovery even if no one has yet been able to develop a coherent explanation as to how this would be.</p><p>The bloated financial sector in the United States is a major engine of inequality sucking money away from poor and middle-income households and making folks like Lloyd Blankfein, Jamie Dimon, and Robert Rubin incredibly rich. There are many who want the government to play a rule in reducing inequality. That might be a desirable goal. However a higher priority would be to have the government stop playing a role in increasing inequality as it does with its support for the financial industry. The outcome of the plans to dismantle Fannie and Freddie will be an important test of where the money is going.</p> Tue, 29 Jul 2014 07:54:00 -0700 Dean Baker, Beat the Press 1013287 at http://www.alternet.org Economy Economy bankruptcy business california Consumer Financial Protection Bureau crapo economics Economy of the United States elizabeth warren fannie mae finance freddie mac harvard jamie dimon johnson lloyd blankfein Mortgage industry of the United States Mortgage-backed security obama administration postal service robert rubin Subprime crisis impact timeline subprime mortgage crisis the new york times United States housing bubble united states basic banking services basic services car industry financial services postal bank postal banking system Don't Buy the 'Sharing Economy' Hype—Airbnb and Uber Facilitate Rip-offs http://www.alternet.org/economy/dont-buy-sharing-economy-hype-airbnb-and-uber-facilitate-rip-offs <!-- 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">Dodging taxes and regulation isn&#039;t just disruptive, it&#039;s bad for the economy.</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/airbnb.png" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>The "sharing economy" – typified by companies like Airbnb or Uber, both of which now have market capitalizations in the billions – is the latest fashion craze among business writers. But in their exuberance over the next big thing, many boosters have overlooked the reality that this new business model is largely based on evading regulations and breaking the law.</p><p>For the uninitiated, Airbnb is an internet-based service that allows people to rent out spare rooms to strangers for short stays. Uber is an internet taxi service that allows tens of thousands of people to answer ride requests with their own cars. There are hundreds of other such services that involve the renting or selling of everything from power tools to used suits and wedding dresses.</p><p>The good thing about the sharing economy is that it facilitates the use of underutilized resources. There are millions of people with houses or apartments that have rooms sitting empty, and Airbnb allows them to profit from these empty rooms while allowing guests a place to stay at prices that are often far less than those charged by hotels. Uber offers prices that are competitive with standard taxi prices and their drivers are often much quicker and more reliable – and its drivers can drive as much or as little as they like, without making a commitment to standard shifts. Other services allow for items to be used productively that would otherwise be gathering dust.</p><p>But the downside of the sharing economy has gotten much less attention. Most cities and states both tax and regulate hotels, and the tourists who stay in hotels are usually an important source of tax revenue (since governments have long recognized that a modest hotel tax is not likely to discourage most visitors nor provoke the ire of constituents). But many of Airbnb's customers are not paying the taxes required under the law.</p><p>Airbnb can also raise issues of safety for its customers and nuisance for hosts' neighbors. Hotels are regularly inspected to ensure that they are not fire traps and that they don't pose other risks for visitors. Airbnb hosts face no such inspections – and their neighbors in condo, co-ops or apartment buildings may think they have the right not to be living next door to a hotel (which is one reason that cities have zoning restrictions).</p><p>Insofar as Airbnb is allowing people to evade taxes and regulations, the company is not a net plus to the economy and society – it is simply facilitating a bunch of rip-offs. Others in the economy will lose by bearing an additional tax burden or being forced to live next to an apartment unit with a never-ending parade of noisy visitors, just to cite two examples.</p><p>The same story may apply with Uber. Uber is currently in disputes with regulators over whether its cars meet the safety and insurance requirements imposed on standard taxis. Also, many cities impose some restrictions on the number of cabs in the hopes of ensuring a minimum level of earnings for drivers, but if Uber and related services (like Lyft) flood the market, they could harm all drivers' ability to earn even minimum wage.</p><p>This downside of the sharing needs to be taken seriously, but that doesn't mean the current tax and regulatory structure is perfect. Many existing regulations should be changed, as they were originally designed to serve narrow interests and/or have outlived their usefulness. But it doesn't make sense to essentially exempt entire classes of business from safety regulations or taxes just because they provide their services over the Internet.</p><p>Going forward, we need to ensure that the regulatory structure allows for real innovation, but doesn't make scam-facilitators into billionaires. For example, rooms rented under Airbnb should be subject to the same taxes as hotels and motels pay. Uber drivers and cars should have to meet the same standards and carry the same level of insurance as commercial taxi fleets.</p><p>If these services are still viable when operating on a level playing field they will be providing real value to the economy. As it stands, they are hugely rewarding a small number of people for finding a creative way to cheat the system.</p> Tue, 27 May 2014 06:35:00 -0700 Dean Baker, The Guardian 996507 at http://www.alternet.org Economy Economy News & Politics Airbnb Uber sharing economy hotel regulation tax dodging 4 Burning Questions for Janet Yellen as She Testifies Before Congress on the Economy http://www.alternet.org/economy/4-burning-questions-janet-yellen-she-testifies-congress-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">On May 7 and 8, the world financial markets -- and Congress -- will be hanging on the Fed Chief&#039;s every word.</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/5bccbb77bf73567ac99c49e08342b304eb13e509_0.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Tomorrow morning, Federal Reserve Chair Janet Yellen will appear for the first time before <a class="blank" href="http://www.jec.senate.gov/public/index.cfm?p=Hearings&amp;ContentRecord_id=4394db09-a2e8-4098-95ef-39f0b7e8c75b&amp;ContentType_id=14f995b9-dfa5-407a-9d35-56cc7152a7ed&amp;Group_id=6d8935b0-4db8-4fc0-991e-3613943b7e4f" target="_blank">Congress' Joint Economic Committee</a>. And on Thursday morning, she'll testify before the<a class="blank" href="http://www.budget.senate.gov/democratic/public/index.cfm/hearings?ID=5e3e84c5-5097-4295-8816-80408809e907" target="_blank">Senate Budget Committee</a>.<br /><br />Especially after last week's divergent economic data -- <a href="http://www.cepr.net/index.php?option=com_content&amp;id=10658&amp;view=article" target="_blank">slow 1st quarter economic growth</a>, a robust increase in jobs, and a <a href="http://www.cepr.net/index.php/data-bytes/jobs-bytes/jobs-2014-05">sharp drop in labor force participation</a> -- the financial markets likely will be hanging on her every word about the nation's current economic outlook and the Federal Reserve's future actions.<br /><br />In advance of these hearings, here are some pertinent questions that could lead to some very interesting and enlightening responses:</p><ol><li>Since Shinzo Abe took over as prime minister in Japan, it has pursued a policy of aggressive fiscal stimulus, coupled with a central bank commitment to raising the inflation rate to 2.0 percent. This is in spite of the fact that its debt to GDP is more than twice as high as in the United States. Since then the economy has picked up and the employment to population ratio has increased by 1.6 percentage points. This would be the equivalent of more than 4 million new jobs in the United States. Do you think Japan's experience offers any lessons for the United States?<br /> </li><li>The Fed's preferred measure of inflation, the core personal consumption expenditure deflator, has risen at just a 1.2 percent annual rate, well below the Fed's 2.0 percent target. With inflation running below target would you view an uptick in inflation as a positive development rather than cause for alarm? <br /> </li><li>One of the main factors that led to the financial crisis is that the investment banks issuing mortgage backed securities (MBS) faced little downside risk if these assets went bad. Are you concerned that giving the investment banks the option to issue MBS that would carry a 90 percent guarantee, as envisioned on Johnson-Crapo, will create an even worse problem of moral hazard? <br /> </li><li>It appears that a core group of countries in the euro zone stand to move ahead with a financial transactions tax. This will lead to a modest increase in the cost of individual transactions and presumably a reduction in the volume of trading. If the United States were to impose a similar tax, would you be worried that the resulting decline in liquidity would obstruct the smooth working of financial markets?</li></ol> Tue, 06 May 2014 13:12:00 -0700 Dean Baker, Beat the Press 989624 at http://www.alternet.org Economy Economy business Central bank chair congress Economic history economics Economy of the United States Federal Reserve System inflation Janet Yellen Japan Joint Economic Committee Late-2000s financial crisis Mortgage-backed security Person Career Personal consumption expenditures price index prime minister Senate Budget Committee Shinzo Abe subprime mortgage crisis US Federal Reserve united states bank commitment Texas May Have Job Growth, But the Quality of Life Really Sucks http://www.alternet.org/economy/texas-may-have-job-growth-quality-life-really-sucks <!-- 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">Let&#039;s cut through conservative baloney about Texas and California.</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/cowboyt.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>In recent months conservatives have been boasting about the strong job growth of red state Texas compared to the much weaker job growth of blue state California. They use this comparison to promote their line that low taxes and pro-business regulations are the key to low unemployment and prosperity. It's worth taking a closer look.</p><p>First, the story is not simply one of Texas growth being driven by oil and gas, although its abundance of energy is clearly a factor. Using the business cycle peak in December of 1981 as a start point, employment has grown by 77.9 percent in Texas compared to just 59.0 percent in California.</p><p>The 1981 start point is a good base of comparison because it was also a period when high energy prices were helping to drive the Texas economy. This means that we are picking up the growth between two energy booms. If instead we looked at the growth between the 1981 business cycle peak the 2000 business cycle peak, a period of low energy prices, California narrowly wins the job growth prize, 48.6 percent to 47.1 percent.</p><p>In this sense Texas is a bit like an OPEC country, clearly energy prices are an extremely important factor to its economy. But energy prices are not the whole story, and neither are low taxes and pro-business regulations.</p><p>The most obvious difference that would hit anyone comparing California and Texas is the enormous difference in housing costs. To take a couple of examples on the rental side according to the Department of Housing and Urban Development the fair market rent for <a href="http://www.huduser.org/portal/datasets/fmr/fmr_il_history/data_summary.odn" target="_hplink">a two-bedroom apartment</a> in Los Angeles County is $1,398 a month. In <a href="http://www.huduser.org/portal/datasets/fmr/fmr_il_history/data_summary.odn" target="_hplink">Harris County</a>, Texas, which includes Houston, it's just $926 a month. The fair market rent for a two-bedroom apartment in <a href="http://www.huduser.org/portal/datasets/fmr/fmr_il_history/data_summary.odn" target="_hplink">Santa Clara County</a>, which includes San Jose, is $1,649 a month. It was just $894 in <a href="http://www.huduser.org/portal/datasets/fmr/fmr_il_history/history_fmr.odn?inputname=METRO19100M19100*Dallas%20County%2B4811399999&amp;county_select=yes&amp;statename=Texas&amp;statefp=48&amp;stusab=TX&amp;fmr_year=2014&amp;il_year=2014&amp;area_choice=county" target="_hplink">Dallas County</a> in 2010, the most recent year available.</p><p>Home sale prices show the same story. According to<a href="http://cgi.money.cnn.com/tools/homepricedata/" target="_hplink">CoreLogic</a>, the median house price in Los Angeles is $456,000. This compares to a median price of $187,000 in Houston. There is a similar story for other cities across the state.</p><p>This enormous gap in housing costs has certainly made a difference in the pace of job growth in the two states. A person working full-time at the national median wage median wage (@ $17 an hour) earning $2,720 a month before taxes, could afford a two-bedroom apartment in Texas and could even buy a home. That would not be true in much of California.</p><p>The difference in housing prices is explained by differences in regulatory decisions. California has sharply restricted construction in most areas. As a result, the Census Bureau reports that the between 1980 and 2010 the number of housing units in Texas increased by 81.9 percent, compared to just 41.3 percent in California.<br /><br />Restricting the number of new homes that can be built improves the quality of life for the people who live in the state by making it less crowded, thereby reducing stress on the infrastructure and the environment. It means, for example, that Californians are less likely to see their homes blown up by <a href="http://www.nytimes.com/2013/04/25/us/texas-fertilizer-plant-fell-through-cracks-of-regulatory-oversight.html?pagewanted=all&amp;action=click&amp;module=Search&amp;region=searchResults%230&amp;version=&amp;url=http%3A%2F%2Fquery.nytimes.com%2Fsearch%2Fsitesearch%2F%3Faction%3Dclick%26region%3DMasthead%26pgtype%3DHomepage%26module%3DSearchSubmit%26contentCollection%3DHomepage%26t%3Dqry943%23%2Ftexas%2520fertilizer%2520plant%2520explosion" target="_hplink">exploding fertilizer plants</a>. But it also means that fewer people will live there. For this reason it shouldn't be surprising that Texas would win the job growth derby; California has effectively decided to constrain its growth.</p><p>The dividend for Californians shows up in various ways. At 80.8 years, life expectancy in California is <a href="http://kff.org/other/state-indicator/life-expectancy/" target="_hplink">well above</a> the national average. The 78.5 year life expectancy in Texas is slightly below the national average. Large chunks of California have been parceled off in protected forests, sea shores, and deserts that people across the globe come to see. There is not much by way of protected nature in Texas.</p><p>If you were fortunate enough to buy a home in the state 25 or 30 years ago, you have likely made a huge amount of money. A house that sold for $150,000 in Los Angeles in 1987, would sell for <a href="http://us.spindices.com/index-family/real-estate/sp-case-shiller" target="_hplink">$540,000 today</a>. This implies a gain of $232,500, after adjusting for inflation. By contrast, house prices in Texas have largely just kept pace with the rate of inflation. Of course that is good news if you're a young person interested in buying a home.</p><p>It's possible to make an argument that a growth path that allows for largely unrestricted development is a better way to go than a path one that tries to constrain growth to protect the quality of life. However it doesn't make sense to argue the case based simply on the fact that the former path leads to more growth.</p><p>There is no doubt that the Texas growth path will lead to more jobs. The question is whether it creates a society where people want to live. Many people are willing to pay lots of money to live elsewhere.</p> Tue, 25 Mar 2014 06:53:00 -0700 Dean Baker, Beat the Press 974467 at http://www.alternet.org Economy Economy Bureau of the Census california CoreLogic Dallas County Department of Housing and Urban Development Dividend extinction harris county houston inflation Los Angeles County los angeles Organization of Petroleum-Exporting Countries san jose Santa Clara County texas USD energy booms energy prices energy high energy prices low energy prices oil and gas Locking Up the Banksters: It's Not Hard! http://www.alternet.org/economy/locking-banksters-its-not-hard <!-- 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 bottom-up strategy could use little fish to go after big sharks.</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/money_0.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Gretchen Morgenson had a<a class="blank" href="http://www.nytimes.com/2014/03/16/business/a-loan-fraud-war-thats-short-on-combat.html?smid=tw-share" target="_blank">column</a> on a new report from the Inspector General of the Justice Department which found that prosecuting mortgage fraud was a low priority, contrary to claims by the Obama administration. Since there is so much confusion on the topic it is worth repeating again what the Justice Department would have done if law enforcement had been its concern.</p><p>It's not a question of simply locking up Jamie Dimon and Lloyd Blankfein and other top bankers, the point would be to build a case from the bottom up. This means going to mortgage agents at Countrywide, Ameriquest, and other major subprime issuers. Investigators would confront them with stacks of improperly documented mortgages and ask them why they put through mortgages with improper or even obviously false documentation.</p><p>Folks who took out a mortgage in years prior to bubble know the ordeal involved. You had to bring in your first grade teacher to vouch for your character. Everything had to be properly documented and was closely scrutinized. This was not the procedure that was followed in the bubble years. Justice Department investigators would ask the mortgage agents why they passed through mortgages without proper documentation.</p><p>Since this was a widespread practice and not the work of a few rogue agents, presumably office managers told these agents to get mortgages and that proper documentation did not matter. Faced with the risk of jail for committing fraud, it is likely that many agents would be prepared to testify that they were acting on instructions from their branch manager. The investigators would then confront their branch managers with the testimony from their employers and ask them what prompted them to tell employers to ignore standard procedures and pass through improperly documented mortgages. Again, faced the prospect of several years in jail, it is likely that many branch managers would be prepared to testify against their bosses at the corporate headquarters. (The Justice Department has pursued this sort of investigation in going after illegal campaign contributions to Washington Mayor Vincent Gray.)</p><p>The same practice would be followed at Goldman Sachs, Morgan Stanley, and the other investment banks that securitized the loans. The folks who were constructing the securities are all smart people who know what a good mortgage looks like. They surely knew that many of the mortgages they were throwing into the pools were not properly documented and almost certainly fraudulent. In these cases the Justice Department investigators would ask the Harvard MBAs whether they are really stupider than rocks.</p><p>At least some would admit to not being morons and acknowledge that they knowingly packaged fraudulent mortgages into securities. These bright young ambitious MBAs would then be offered the opportunity to stay out of jail if they told investigators why they thought it was a good idea to package fraudulent mortgages into mortgage backed securities.</p><p>Would this process have put Jamie Dimon, Lloyd Blankfein, Robert Rubin and the rest behind bars? Who knows, but we know with certainty that the Justice Department never started on this path so there was no way that the honchos could ever be held accountable for any crimes they did commit. This speaks volumes about the nature of justice in the United States today.</p><p>There is one other issue that is worth addressing here. Many commentators have argued that the honchos were foolish, not crooked. They really did believe that the house prices would just keep rising. In this case all the mortgages would end up being good mortgages. (If a bank forecloses on a fraudulent loan where the house has appreciated 20-30 percent, it is not likely to suffer a loss.) </p><p>It is entirely possible that the top people at the banks really did believe that the bubble would keep inflating indefinitely, but it is also irrelevant. (The Enron boys may have believed they really had a good business model. That doesn't change the fact that they broke the law.) The issue at hand is whether they knowingly issued and passed along mortgages that were not documented properly. That is fraud and a criminal act. It doesn't change anything if they were also stupid.</p> Mon, 17 Mar 2014 11:59:00 -0700 Dean Baker, Center for Economic and Policy Research 971368 at http://www.alternet.org Economy Economy department of justice economics enron finance Financial economics goldman sachs gretchen morgenson harvard inspector general interest rates jamie dimon law lloyd blankfein mayor morgan stanley mortgage fraud Mortgage-backed security mortgage obama administration Person Career robert rubin securitization subprime mortgage crisis United States housing bubble united states Vincent Gray washington bank branch manager first grade teacher law enforcement The New York Times' Reporting on Obama's Budget is a Big Joke http://www.alternet.org/economy/new-york-times-reporting-obamas-budget-big-joke <!-- 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 excuse for budget reporting that flunks the basic task of informing readers.</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/blind_business_man_0.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>RT, the Russian government-owned English-language television network, has been the butt of much humor in recent days. It has mindlessly repeated Russian propaganda surrounding the events in Ukraine. The ridicule is well-deserved. News organizations are supposed to inform readers about the world, not make stuff up. Unfortunately, much of the U.S. media deserve comparable ridicule when it comes to budget reporting.</p><p>While news outlets don't just invent numbers on the budget, it would not be much of a change for the worse if they did. The news stories that we saw following the release of President Obama's budget followed the same practice we have seen in budget stories for decades. They threw very large numbers at readers that no one understands.</p><p>For example, a <a href="http://www.nytimes.com/2014/03/05/us/politics/obama-submits-budget-to-congress.html?action=click&amp;module=Search&amp;region=searchResults%230&amp;version=&amp;url=http%3A%2F%2Fquery.nytimes.com%2Fsearch%2Fsitesearch%2F%3Faction%3Dclick%26region%3DMasthead%26pgtype%3DHomepage%26module%3DSearchSubmit%26contentCollection%3DHomepage%26t%3Dqry447%23%2Fcalmes%2Fsince1851%2Fallresults%2F1%2Fallauthors%2Fnewest%2F" target="_hplink"><em>New York Times</em></a> piece on the Obama budget told readers that Obama would increase spending by $302 billion over the next four years on infrastructure. It tells us that he would spend $76 billion over 10 years on funding pre-K education. He would raise $1 trillion in revenue over 10 years and he wants to spend an additional $55 billion on the discretionary portion of the budget in an unspecified number of years. Are you well-informed now?</p><p>This is joke reporting and everyone knows it. Suppose we added or subtracted a zero from these numbers. If <em>NYT</em> told us that Obama had proposed spending $3,020 billion or $30.2 billion on infrastructure would it have made much difference to how most readers understood this number? In all three cases, this is a really large number that is virtually meaningless to the overwhelming majority of <em>NYT</em> readers. That's true even though the <em>NYT</em> has a highly-educated and well-informed readership.</p><p>No one disputes this fact. <a href="http://petitions.moveon.org/sign/nytimes-sulliview-put?source=s.icn.tw&amp;r_by=27350" target="_hplink">Move-on</a> and <a href="http://mediamatters.org/blog/2013/10/19/new-york-times-takes-steps-to-improve-economic/196507" target="_hplink">Media Matters</a> pressed this issue with the <em>NYT</em> in a petition last fall. The <em>NYT's</em> public editor, Margaret Sullivan, <a href="http://publiceditor.blogs.nytimes.com/2013/10/18/the-times-is-working-on-ways-to-make-numbers-based-stories-clearer-for-readers/?hp&amp;_r=0" target="_hplink">strongly agreed</a> that the budget numbers as presented were largely meaningless to the vast majority of its readers. She raised the point with David Leonhardt, then the national news editor. He also completely agreed, adding that in such cases people just see "really big number."</p><p>According to Leonhardt, the <em>NYT</em> was taking steps to ensure that budget numbers and other big numbers would be expressed in a context that made them understandable to readers. Now it's more than four months later and the budget reporting still gives readers the same big numbers without any context.</p><p>There is no excuse for continuing a pattern of budget reporting that clearly flunks the basic task of informing readers. The most obvious way in which to make budget numbers understandable is to express them as a share of the total budget. All the reporters at the major news outlets know how to do simple division with a calculator. CEPR has even constructed an <a href="http://www.cepr.net/index.php/responsible-budget-reporting" target="_hplink">online budget calculator</a>that allows reporters on deadline to do this calculation in seconds. Why would news outlets not take a trivial step that would make their material much more informative to their audience?</p><p>And it does matter. Polls consistently show that the public is hugely misinformed about where their budget dollars go. In a <a href="http://www.cnn.com/2011/POLITICS/04/01/americans.flunk.budget.iq/index.html" target="_hplink">CNN poll</a>from 2011 the median estimate of foreign aid spending put it at 10 percent of the budget. Foreign aid is actually well under 1.0 percent of the budget. The midpoint estimate put spending for the Corporation for Public Broadcasting (CPB) at 5.0 percent of the budget. Spending on CPB actually comes to 0.012 percent of the budget. Polls also routinely show people grossly over-estimate the amount of money spent of programs like food stamps and Temporary Assistance for Needy Families, the program that is usually thought of as welfare.</p><p>It is impossible to have a serious public debate about programs when most of the public over-estimates the cost by a factor of 20, 30, or even more than 100. Obviously some people who dislike these programs will want to believe they get a huge amount of government money regardless of what they read in the newspapers or hear on the news. However a large portion of the population is genuinely ignorant about the size of these programs and they will quite reasonably think differently about TANF if they believe it is 20 percent of the budget as opposed to 0.4 percent.</p><p>So are the <em>New York Times</em>, National Public Radio, the <em>Washington Post</em>and the rest just more sophisticated versions of RT, deliberately obfuscating budget numbers so as not to disturb popular prejudices rather than providing real information? That would be a very discouraging state of affairs, but what other explanations exist?</p><p>Everyone recognizes that the current practices in budget reporting provide no information. And the remedy is simple and costless. What the hell is going on here?</p> Wed, 12 Mar 2014 06:29:00 -0700 Dean Baker, Beat the Press 969227 at http://www.alternet.org Economy Economy Media barack obama business cnn david leonhardt illinois Margaret Sullivan national public radio new york times obama Person Career politics Presidency of Barack Obama president Quotation RT deliberately obfuscating budget RT Russian government social issues USD ukraine united states food stamps national news editor online budget calculator Public Editor television network the new york times the washington post Why Obamacare is Scary for the Folks Who Want Their Toilets Cleaned on the Cheap http://www.alternet.org/economy/why-obamacare-scary-folks-who-want-their-toilets-cleaned-cheap <!-- 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 so hard to find dirt-cheap help these days!</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/toilet.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Now that the talk of death panels and other craziness about Obamacare has faded away, people are looking more seriously at what the program actually will do. A major part of the story is that Obamacare will allow people to get health care outside of the workplace.</p><p>This has often been framed as an issue of insuring the uninsured. And this is an important part of the Affordable Care Act (ACA). However, it is even more important that the tens of millions of people who currently have insurance through their employers will now have the option to quit their job and get insurance through the exchanges.<br /><br />This means that millions of people will no longer be tied to their jobs in the same way as they had been previously. As a result, millions of older workers and people with serious health conditions are likely to cut back their hours or quit work altogether since they will no longer need to work at a job that provides health care insurance. The same will be true of many parents of young children who would rather work less to spend time with their kids.</p><p>This was the basis for the Congressional Budget Office's (CBO) <a href="http://www.cbo.gov/publication/45010" target="_hplink">assessment</a>that the ACA would reduce the supply of labor by 2 percent. CBO calculated that several million people would either cut back their work hours or leave the labor force altogether.</p><p>While CBO didn't explore this issue, other things equal, a reduction in the supply of labor would be expected to lead to a rise in its price. In other words, wages would rise. That would be good news for workers who have seen their wages stagnate for more than three decades.</p><p>We actually already have some evidence that Obamacare could lead to a rise in wages for this reason. In 2005, Tennessee essentially did Obamacare in reverse. Prior to that date, it had a generous supplement to its state Medicaid program that provided highly subsidized insurance for people below 200 percent of the poverty line.</p><p>Due to budgetary pressures, it cut back this program in 2005. It ended the subsidies for single adults. Immediately afterwards there was a sharp increase in labor force participation, as hundreds of thousands of people in Tennessee again had to seek insurance through their job. This meant a big increase in the supply of labor.</p><p>The textbook story is that a rise in the supply of labor would lower wages. It appears that this is exactly what happened. My colleagues Janelle Jones and John Schmitt compared wage trends in Tennessee with the rest of the South in the years since 2004. They found wages in Tennessee for workers with a high school degree or less (the group likely to be most affected) <a href="http://www.cepr.net/index.php/blogs/cepr-blog/will-obamacare-boost-wages" target="_hplink">fell by 6.5 percentage points</a> relative to wages in other southern states.</p><p>If the increase in the supply of labor resulting from Tennessee's cutback in its Medicaid program led to a drop in wages, the implication is that the reduction in the supply of labor from Obamacare will lead to an increase in wages. In other words, Obamacare might be the best news on the wage front that most workers have seen for some time.</p><p>This could help to explain the outrage coming from Republican quarters following the release of the CBO report. Many opponents of the ACA claimed that CBO had projected a loss of millions of jobs, implying that impact was on the demand side. This is clearly not the case and CBO was careful to clarify in subsequent writings that the impact was on supply of labor, not the number of jobs.</p><p>Other conservatives correctly recognized that Obamacare will allow millions the option of not working or working fewer hours and decried its impact on incentives. Undoubtedly it is painful for the rich and powerful to see ordinary workers have the opportunity to spend time with their kids or recuperating from an illness.</p><p>But if the Tennessee wage story proves right, then this is not just a case of resentment by the rich. This is also a bread and butter issue for them. After all, if there is a tighter labor market then the folks who clean their toilets, manicure their lawns, and provide other services will be in a position to ask for higher wages and better working conditions. Now that would be a real disaster.</p> Tue, 25 Feb 2014 12:35:00 -0800 Dean Baker, Beat the Press 962883 at http://www.alternet.org Economy Economy 111th United States Congress Congressional Budget Office History of the United States humanities Janelle Jones John Schmitt labor Labour economics Patient Protection and Affordable Care Act Political debates about the United States federal budget politics Presidency of Barack Obama tennessee health care insurance subsidized insurance Why the Fear That a Robot Will Take Your Job is Ridiculous http://www.alternet.org/economy/why-fear-robot-will-take-your-job-ridiculous <!-- 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 rich are your problem, not the robots. </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/robot_and_human.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Economists are not very good at economics. We know this because we had a huge housing bubble that collapsed, which almost none of them saw. The pre-crash projections from the Congressional Budget Office imply that this downturn <a href="http://www.cepr.net/index.php/blogs/beat-the-press/the-damage-from-the-housing-bubble-how-much-did-the-greenspan-rubin-gang-cost-us" target="_hplink">has already cost us more than $7.6 trillion</a>, or $25,000 per person. This could have been prevented if we had economists in policy positions who understood how the economy worked.</p><p>But even if economists aren't very good at dealing with the economy, they still can provide value to society. In particular they can be a great source of entertainment. That's how we should view the story that robots will take all of our jobs and leave most of the population unemployed.</p><p>This story has become a popular theme lately among Washington policy types. There are important people from across the political spectrum running around town wringing their hands over the prospect that the economy may not provide jobs for large segments of the labor force.</p><p>The first aspect of this story that should impress people is that many of the same people have been wringing their hands about the exact opposite problem, most likely without even knowing it.</p><p>Remember the story about how the aging of the baby boomers will bankrupt us because we will have too few workers to support the surge of retired baby boomers?</p><p>In that story, all of us aging baby boomers will be left waiting around for someone to change our bedpans. But now we are supposed to be worried that we won't have any work for people to do because the robots will be there to do it faster and cheaper.</p><p>Either of these stories could in principle be true, but they cannot both be true. If robots are capable of doing most of the tasks that humans now do, then we don't have to worry about declining ratios of workers to retirees. We will have plenty of robots to do the work for us.</p><p>Alternatively, if we are facing labor shortages because there are too few workers to support a growing population of retirees, then clearly robots will not have taken everyone's job. At worst we have to worry about one of these problems, but not both.</p><p>Let's assume robots are the problem. This would actually not be a new story. The robots might be new, but this is the story of productivity growth that we have dealt with for centuries. Ordinarily we think productivity growth makes us richer, since we can produce more goods or services in every hour of work. This can lead to rising pay and living standards or alternatively more leisure time.</p><p>However, the robot story is somewhat different or so its proponents would claim. Robots are supposed to lead to such rapid increases in productivity that there will be no way for all the displaced workers to be reemployed. The problem in this case is not productivity; rather the problem is that all the benefits are going to the owners of the robots.</p><p>Before evaluating the logic of this one, it's first worth noting that we have yet to see any evidence to back up this picture of the economy. In the last six years, productivity growth has been notably slower than in the years from the beginning of the productivity speed-up in 1995 to the beginning of the downturn in 2008. There also is<a href="http://www.cepr.net/index.php/blogs/cepr-blog/job-polarization-2000s" target="_hplink">no evidence</a> that robots and other technological change is responsible for the upward distribution of income in the last three decades.</p><p>But there is a more fundamental problem with this robot-driven inequality story. The owners of the robots won't directly get rich from owning the machines: robots will presumably be relatively cheap to make. After all, we can have robots make them. If the owners of robots get really rich it will be because the government has given them patent monopolies so that they can collect lots of money from anyone who wants to buy or build a robot.</p><p>Patents are not given to us by the gods or nature, we write patent laws. If patent monopolies are making most of us poor and a small number rich, then we can just write the laws differently. It's very simple; we make patents shorter and weaker. That could mean 10 years rather than 20 years. And perhaps more importantly, we make patent enforcement more difficult.</p><p>That means interpreting the patents more narrowly. For example, the next time some character like Jeff Bezos tries to claim a <a href="http://www.forbes.com/sites/timworstall/2011/07/07/amazon-loses-1-click-patent/" target="_hplink">patent on something like one-click shopping</a>, we not only turn down his patent suit, but we fine him really big bucks for trying to beat his competitors in the courts rather than the marketplace and for wasting everyone's time.</p><p>If we adjust patent laws to better serve the economy we can ensure that robots and other technological breakthroughs make most of the world richer not poorer. The economists might tell us that the problem of inequality is just the natural progress of technology and the economy, but the bubble and its collapse should have taught us better than to take this crew seriously. The problem is really just one of the rich writing the rules to make themselves richer.</p> Wed, 05 Feb 2014 10:48:00 -0800 Dean Baker, Beat the Press 955125 at http://www.alternet.org Economy Economy Labor business Congressional Budget Office economic growth Jeff Bezos manufacturing patent Productivity improving technologies productivity Quotation robot technology USD washington goods or services Obama Teams Up with Big Business to Push Through Horrible Secret Trade Deal http://www.alternet.org/economy/tpp-and-obama <!-- 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">Just like NAFTA, the TPP is bolstered by lies and forced on the people by corporate greed.</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_74521771.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>With the New Year the corporate lobbyists and the Obama administration are stepping up their drive for passage of the Trans-Pacific Partnership (TPP), the new trade deal being negotiated in secret by the United States and eleven countries in the Pacific region. The key at the moment is Congressional approval of fast-track authority. This would give any agreement a straight up or down vote on an accelerated timetable.</p><p>Fast-track authority would virtually guarantee passage since members would face intense pressure from corporate contributors and the media, in both the news and opinion sections, to support the deal. Failure to support a deal would mean that a member would be labeled a protectionist Neanderthal (name-calling is standard fare in Washington when pushing for trade deals) in addition to being badly under-funded in their re-election campaign.</p><p>As has frequently been noted, the TPP is not really about trade. The tariff barriers and quotas between the TPP countries are already low in most cases. Rather the point of the deal is to put in place a structure of regulations that will be more friendly to the large corporations who are in many cases <a href="http://www.nxtbook.com/nxtbooks/americanprospect/201204specialreport/#/14" target="_hplink">directly part of the negotiating process</a>.</p><p>The provisions in the agreement will overrule measures passed by national, state, and local legislative bodies, in effect stripping democratically elected officials of much of their authority. Since most of the text is still secret we can only speculate on what the final agreement will include.</p><p>The leaked chapter on intellectual property indicated that it would likely mean sharply higher drug prices in many countries since the TPP would strengthen patents and related restrictions on selling drugs. The final agreement may limit the ability of governments to regulate fracking. In the United States, federal law prohibits state and local governments from requiring disclosure of the chemicals used in the fracking process. This makes it far more difficult to detect pollution of ground water and drinking water. The TPP may include a similar provision.</p><p>It may also include restrictions on the ability of governments to regulate the financial sector. This could allow banks to skirt rules in Dodd-Frank or comparable financial reform bills approved by other countries.</p><p>It is likely that many of the provisions in the final agreement would be highly unpopular if they were put up for a vote, but the whole point of getting the deal as a fast-tracked take it or leave it deal is to prevent individual provisions from ever being considered. And there will be enormous pressure to take it.</p><p>That is what we saw with the full court press used to pass NAFTA. And twenty years later the media and the economics profession are still covering up on the impact of NAFTA in order to avoid embarrassment to the deal's supporters. For example, <em>The Washington Post</em> <a href="http://www.washingtonpost.com/world/mexicos-middle-class-is-becoming-its-majority/2012/03/14/gIQA9R0KJS_story.html" target="_hplink">recently wrote</a> about Mexico's growing middle class which it attributed in part to NAFTA. This is in spite of the fact that Mexico had the <a href="http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weoselagr.aspx" target="_hplink">second slowest growth</a> on any country in Latin America since the passage of NAFTA.</p><p><em>The Washington Post</em> also bizarrely asserted in a 2007 editorial attacking presidential candidates for criticizing NAFTA that Mexico's GDP <a href="http://www.washingtonpost.com/wp-dyn/content/article/2007/12/02/AR2007120201588.html" target="_hplink">had quadrupled since 1988</a>. In fact, its growth was<a href="http://www.cepr.net/index.php/blogs/beat-the-press/the-washington-post-still-cant-talk-honestly-about-mexicos-economy" target="_hplink">just 83 percent</a>.</p><p>The economics profession, or at least pillars such as the World Bank, has also been prepared to make up numbers to make it appear NAFTA was a success. On the tenth anniversary of NAFTA the World Bank <a href="http://www.cepr.net/index.php/publications/reports/getting-mexico-to-grow-with-nafta-the-world-banks-analysis" target="_hplink">published a report</a> touting the benefits of NAFTA to both the United States and Mexico.</p><p>One of the key claims in this report was that NAFTA had produced faster growth in Mexico, leading to a convergence in living standards between Mexico and the United States. It is easy to see that this was not true. According to<a href="http://www.cepr.net/index.php/?phpMyAdmin=330ac50250f0at3851ad76r2963&amp;task=view" target="_hplink">IMF data</a>, Mexico's per capita GDP rose by 29.1 percent from 1993 to 2002, the last year in the study. By contrast, per capita GDP had risen by 44.2 percent in the United States over the same period.</p><p>Typically we would expect that a developing country would have more rapid growth than a rich country like the United States, so it would not be clear whether any convergence was due to NAFTA or would have happened regardless. However since growth in the U.S. outpaced growth in Mexico there was no convergence to argue over, the gap in incomes became larger.</p><p>Nonetheless, the World Bank's report trumpeted the success of NAFTA, showing how it led to greater prosperity for Mexico. They used a <a href="http://www.cepr.net/index.php/?phpMyAdmin=330ac50250f0at3851ad76r2963&amp;task=view" target="_hplink">mistaken analysis</a> to get this result, which the Bank has refused to correct to this day.</p><p>This is what the opponents of the TPP can expect to encounter. All the rules of objectivity that the media claim to respect will be thrown in the dustbin. The same applies to any norms of professional integrity in economics.</p><p>Big money is at stake here and the big boys intend to get a win with TPP. Logic, numbers, and evidence face an uphill battle.</p> Tue, 21 Jan 2014 03:42:00 -0800 Dean Baker, Beat the Press 949519 at http://www.alternet.org Economy Economy News & Politics business canada Economy of North America International Monetary Fund international relations international trade latin america mexico New Year's Day Nonetheless North American Free Trade Agreement obama administration Presidency of Bill Clinton the washington post trans-pacific partnership Trans-Pacific Strategic Economic Partnership United States free trade agreements united states washington world bank chemicals federal law All Eyes on New York Mayor Bill de Blasio, America's Leading Progressive http://www.alternet.org/all-eyes-new-york-mayor-bill-de-blasio-americas-leading-progressive <!-- 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 are limits to what a big city mayor can do, but Mayor de Blasio can make a difference for both the people of New York and the country.</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_2014-01-06_at_12.47.03_pm.png" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p> </p><p><a href="http://www.nytimes.com/2014/01/01/nyregion/de-blasio-draws-all-liberal-eyes-to-new-york-city.html?_r=1&amp;">Reporting </a>on the significance of <a href="http://www.theguardian.com/world/bill-de-blasio" title="More from the Guardian on Bill de Blasio">Bill de Blasio</a> becoming mayor of <a href="http://www.theguardian.com/world/new-york" title="More from the Guardian on New York">New York</a> may have led some to fear that the Soviet Union was being reincarnated in the country's largest city. While De Blasio is certainly to the left of many leaders of the America's Democratic party, he is certainly no radical seeking to overthrow capitalism. Furthermore, even if he did plan to seize the means of production, his ability to do so as the mayor of a major city would be quite limited.</p><p>Nonetheless, there are many areas where the mayor of New York can have a substantial impact. The top of this list would be education policy. De Blasio's predecessor,<a href="http://www.theguardian.com/commentisfree/2013/dec/30/mayor-bloomberg-legacy-took-new-york-soul"> Michael Bloomberg</a>, was a vocal and visible supporter of the education reform movement. While this movement has produced big profits for corporations in the testing business and made some policy entrepreneurs rich and famous, it has not done much to improve education for inner city kids.</p><p>De Blasio's pick for schools chancellor, Carmen Farina, has decades of experience in the New York school system as a teacher, principal, and administrator. She apparently intends to scale back the intense focus on testing of the Bloomberg administration. She is also likely to work more cooperatively with the teachers union. If this path produces positive results, it will be an important example for other school districts.</p><p>There are other areas where de Blasio could try innovative policies. The fact that a bloated financial sector can<a href="http://www.bis.org/publ/work381.pdf"> be a drag on growth</a> (pdf) is getting increasing attention. Even the International Monetary Fund has<a href="https://www.imf.org/external/np/g20/pdf/062710b.pdf">advocated higher taxes on the financial industry</a> (pdf) to reduce the amount of waste in the sector.</p><p>Ideally, the <a href="http://www.theguardian.com/world/usa" title="More from the Guardian on United States">United States</a> would impose a tax on financial transactions similar to the one <a href="http://dealbook.nytimes.com/2013/02/06/time-to-revive-the-financial-transaction-tax/">now being debated in the euro zone</a>. While the city could not impose a large tax on the industry for fear of driving away business, certainly a very modest tax – say 0.01% would be doable. Goldman Sachs and JP Morgan will not pick up stakes and move across the river over a tax of one hundredth of a percent. A tax of this size could raise billions of dollars a year.</p><p>In the same vein, the city could impose a tax on the flipping of mortgages attached to property in the city. This tax would apply regardless of where the transaction took place. A tax of 0.15% on a mortgage sale would be a trivial cost for most homebuyers (a first sale could be exempted), but it would provide a substantial disincentive to repeated turnover.</p><p>The city could also move to discourage real estate speculation by imposing a tax on vacant property. This one has the great effect that the best way to evade the tax is to rent or sell property that had been sitting empty.</p><p>De Blasio could also try some useful experiments in making the workplace more family friendly. The City Council recently voted to require most employers to provide at least five paid sick days to workers. This rule is being phased in over the next two years. De Blasio could look to experiment with more flexible work schedules with the city's labor force. For example, if many workers opted for four day workweeks, it would substantially reduce the time and money wasted in commuting. If four day workweeks ever became the norm, it would mean a huge reduction in the amount of traffic and congestion during rush hours.</p><p>De Blasio could also look to promote work sharing program that is already part of New York state's unemployment insurance system. Under this program, employers have the option to reduce workers' hours rather than lay them off. Rather than getting unemployment benefits for losing their jobs, workers would have roughly half of their lost income reimbursed from the unemployment insurance system.</p><p>This keeps workers on the job and improving their skills rather than risk being unemployed for a long period of time. Germany's effective use of work sharing and comparable programs have brought its unemployment rate down to 5.2% from 7.8% at start of the downturn, in spite of the fact that its growth rate is virtually the same as the US rate. Work sharing should be popular with the state government also since the cost of the program is picked up by the federal government, at least through the end of 2014.</p><p>There are many other areas where de Blasio could be an innovator. He could try experiments with free transit on the buses and the subway to see how much ridership would increase and greenhouse gas emissions would be reduced. He could also look to have modest subsidies for retrofitting homes and businesses to make them more energy efficient. This would also be a great way to help generate employment.<br /><br />There are certainly limits to what a big city mayor can do, but Mayor de Blasio can make a difference for both the people of New York and the country, if he is willing to try.</p> Mon, 06 Jan 2014 09:42:00 -0800 Dean Baker, The Guardian 943798 at http://www.alternet.org News & Politics de blasio Massive Inequality Didn't Just Happen—It Was Engineered by Conservative Government Policies http://www.alternet.org/massive-inequality-didnt-just-happen-it-was-engineered-conservative-government-policies <!-- 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">Inequality in America is the result of a whole range of policies intended to redistribute income upward. </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_2013-12-18_at_4.02.02_pm_0.png" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p> </p><p>In his speech on inequality earlier this month, President Obama proclaimed that the government could not be a bystander in the effort to reduce inequality, which he described as the defining moral issue of our time. This left millions convinced that Obama would do nothing to lessen inequality.</p><p>The problem is that President Obama wants the public to believe that inequality is something that just happened. It turns out that the forces of technology, globalization, and whatever else simply made some people very rich and left others working for low wages or out of work altogether. The president and other like-minded people feel a moral compulsion to reverse the resulting inequality. This story is 180 degrees at odds with the reality. Inequality did not just happen, it was deliberately engineered through a whole range of policies intended to redistribute income upward.</p><p>Trade is probably the best place to start just because it is so obvious. Trade deals like NAFTA were quite explicitly designed to place our manufacturing workers in direct competition with the lowest paid workers in the world. The text was written after consulting with top executives at major companies like General Electric. Our negotiators asked these executives what changes in Mexico's law would make it easier for them to set up factories in Mexico. The text was written accordingly.</p><p>When we saw factory workers losing their jobs to imports from Mexico and other developing countries, this was not an accident. In economic theory, the gains from these trade deals are the result of getting lower priced products due to lower cost labor. The loss of jobs in the United States and the downward pressure on the jobs that remain is a predicted outcome of the deal.</p><p>There is nothing about the globalization process that necessitated this result. Doctors work for much less money in Mexico and elsewhere in the developing world than in the United States. In fact, they work for much less money in Europe and Canada than in the United States. If we had structured the trade deals to facilitate the entry of qualified foreign doctors into the country it would have placed downward pressure on the wages of doctors (many of whom are in the top one percent of the income distribution), while saving consumers tens of billions a year in health care costs.</p><p>In other words, the government quite deliberately structured our trade to put downward pressure on the wages of much of the labor force, while protecting doctors and other highly paid professionals from similar competition. Trade is just one of the many ways in which the government has redistributed income upward over the last three decades.</p><p>The subsidy for too big to fail banks, which makes the Wall Street crew incredibly rich, is another way that the government redistributes money to the top. Bloomberg <a href="http://www.bloomberg.com/news/2013-02-24/remember-that-83-billion-bank-subsidy-we-weren-t-kidding.html" target="_blank">estimated</a> the size of this annual subsidy for the Wall Street gang at $80 billion a year, more than the government spends on food stamps.</p><p>The longer and stronger patent protection the government has given pharmaceutical companies is another way that money goes from the rest of us to the rich. The annual size of patent rents in the drug industry is currently in the neighborhood of $270 billion, more than three times as much as the government spends on food stamps.</p><p>And the macroeconomic policy run by the government has also worsened inequality. Budgets are crafted by politicians, not the gods or nature. The decision not to run a more stimulatory policy to reduce unemployment is every bit as much a conscious act as would be the decision to try to bring the economy to full employment with further stimulus.</p><p>In other words, Congress and the president have decided to craft budgets that lead to tens of millions of people being unemployed or underemployed. As Jared Bernstein and I point out in <a href="http://www.cepr.net/index.php/publications/books/getting-back-to-full-employment-a-better-bargain-for-working-people" target="_blank">our new book</a>, high levels of unemployment put downward pressure on workers' wages, especially those in the bottom third of the labor force. This means we have a federal budget that limits growth and employment in a way that redistributes income upwards.</p><p>There is a much longer list of ways in which the government has acted to redistribute income upwards over the last three decades. I have a fuller discussion in my book,<a href="http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism" target="_blank">The End of Loser Liberalism: Making Markets Progressive</a>.</p><p>But the key point is that inequality didn't just happen; it was the result of government policy. That is why people who actually want to see inequality reduced, and for poor and middle class to share in the benefits from growth, are not likely to be very happy about President Obama's speech on the topic. His comment about the government being a bystander ignores the real source of the problem. Therefore it is not likely that he will come up with much by way of real solutions.</p> Tue, 24 Dec 2013 11:18:00 -0800 Dean Baker, AlterNet 940465 at http://www.alternet.org policy inequality How Elizabeth Warren Upset the DC Establishment's Plans to Weaken Social Security http://www.alternet.org/economy/how-dc-corporate-establishments-carefully-laid-plans-destroy-social-security-was-badly <!-- 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">Warren&#039;s support for raising Social Security benefits could be exactly what we need to move the discussion of retirement income in a positive direction.</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/01db016d05184764f74670176568de9255b09df1_0.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>When Senator Elizabeth Warren came out for increasing Social Security last month it set in motion a remarkable turn of events. For over a decade the only discussion of Social Security by the Washington power types was over how much to cut it and when. The extreme left position was that current spending was about right.</p><p>Senator Warren changed the debate when she endorsed a bill proposed by Iowa Senator Tom Harkin that would index retirees' benefits to an index that more closely tracks the cost-of-living of seniors. The bill also would raise benefits by roughly $70 a month. As a result of Warren's prominence in national politics, and the fact that raising Social Security benefits is actually quite popular, the Washington insider types were forced to take the idea seriously.</p><p>As was predictable, she was quickly denounced by the usual suspects, most notably the ostensibly center-left group Third Way. Third Way is one of the many Wall Street funded groups that manage to get credibility in policy circles almost entirely by virtue of their funding. They have no real political following and rarely produce anything resembling original thinking or research. But in Washington, money commands attention.</p><p>Third Way is one of a long list of organizations that have received Wall Street funding to go after Social Security and Medicare under the guise of protecting the young from their greedy parents and grandparents. This list includes Lead or Leave, the Concord Coalition, The Committee for a Responsible Federal Budget, America Speaks, Fix the Debt and the Can Kicks Back.</p><p>At a time when we are seeing the largest upward redistribution in the history of the world these organizations have attempted to divert attention from the class war on the nation's middle class and poor. Instead they are trying to convince young people that their financial difficulties stem from the size of their parents' Social Security checks.</p><p>The Wall Street crew also has allies in this effort in the media and academia. The Washington Post stands out in the former category, using both its news and opinion pages to push for cuts to Social Security and Medicare. There is also considerable funding for academics who want to do work showing how the<a href="http://www.pewsocialtrends.org/2011/11/07/the-rising-age-gap-in-economic-well-being/" target="_blank"> young are losing out to the elderly</a>.</p><p>For these reasons, Warren's call for raising Social Security benefits could mark a real turning point. It could mean that we get a public debate which looks at the program with open eyes, recognizing that it is a large and growing portion of workers' retirement income.</p><p>While Social Security does keep most seniors out of poverty, the $1,300 average monthly benefit is certainly not enough for a comfortable retirement for people who lack another source of support. A modest increase in benefits to retirees in the bottom half of the income distribution would make a big difference in their standard of living at relatively little cost to the program.</p><p>What is most desperately needed for middle income workers is a new retirement system to replace the failed 401(k) system. There has been much work on this issue over the last two decades at both the state and federal level. The outlines of such a new system are clear.</p><p>It needs to have low administrative costs so workers can maximize the amount that they earn relative to financial intermediaries. It has to be portable so workers can keep the same plan when they change jobs. It should be simple and ideally offer something like a cash balance system where workers can be guaranteed a minimal return. And it should allow for easy, if not automatic, conversions to annuities in retirement.</p><p>There would be lots of support for this sort of system from across the political spectrum. And it could be set up at the state of level, as <a href="http://www.eoionline.org/retirement-security/retirement-security-accounts/washington-voluntary-accounts-universal-access-to-retirement-security/" target="_blank">activists in Washington State </a>and elsewhere have tried to do. The only real obstacle are those firms in the financial industry that currently make a fortune from fees managing 401(k)s. But this has been enough to prevent any plan from moving forward to date.</p><p>Anyhow, Warren's support for raising Social Security benefits could be exactly what we need to move the discussion of retirement income in a positive direction. As far as the pain suffered by the young, it is very real but the main causes are the high unemployment budgets coming out of Congress and the over-valued exchange rates.</p><p>The young are the biggest victims of unemployment, not only because they are more likely to be unemployed, but because they are also <a href="http://www.cepr.net/index.php/publications/books/getting-back-to-full-employment-a-better-bargain-for-working-people" target="_blank">likely to see their hours cut</a> and get lower pay when they do work. We know how to reverse these policies, but it means confronting Wall Street, not beating up our parents and grandparents.</p> Tue, 17 Dec 2013 12:54:00 -0800 Dean Baker, AlterNet 937869 at http://www.alternet.org Economy Corporate Accountability and WorkPlace Economy elizabeth warren Government Policy Designed for the One Percent Screws Walmart Workers http://www.alternet.org/economy/walmart-and-government-policy <!-- 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">Bad policy has redistributed income away from working people to the rich. </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/walmart_1.png" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>There is a large and growing movement to pressure Walmart to raise its workers' wages. This has taken the form of direct action by workers, efforts to pass higher minimum wage or living wage laws, and implicit threats of consumer boycotts if Walmart does not raise wages and benefits.</p><p>This drive is encouraging, and often inspiring, as many workers have bravely risked their jobs and their livelihoods to try to get a better deal for themselves and their co-workers. But an important part of the story is missing in the way it usually gets presented.</p><p>The standard story is that Walmart workers, left to the mercy of the market, are unable to earn a high enough wage to support themselves and their families. There have been numerous accounts of Walmart workers being forced to turn to food stamps and other forms of government support to make ends meet. It is extremely difficult for a single person to survive on a Walmart wage. There is no way that a typical Walmart worker could support one or two children without help from the government.</p><p>In this picture, the government is the helping hand that allows Walmart workers to make ends meet despite the bad cards dealt to them by the market and Walmart's stingy wage policy. The problem with this story is that the cards were not just dealt out randomly; there was a rigged deck.</p><p>People with better alternatives don't go to work for Walmart at eight or nine dollars an hour. And a main reason that Walmart workers don't have better alternatives is that we have run economic policy in a way that doesn't give them better alternatives.</p><p>Part of this story is our trade policy. We have made a decision to expose our manufacturing workers to competition with low-paid workers in the developing world. This had the predictable effect of reducing the number of jobs in manufacturing and putting downward pressure on the wages of the jobs that remain in the sector.</p><p>We also have a policy of having an over-valued dollar, which is the basis of our trade deficit of $500 billion a year (at 3 percent of GDP). This trade deficit costs us roughly 4.2 million jobs directly and another 2.1 million indirectly, for a total of 6.3 million jobs. A disproportionate share of these jobs would be relatively high paying jobs in manufacturing, which many Walmart workers would likely grab in a minute.</p><p>And our budget policy also has the effect of constraining demand, reducing GDP and stifling job growth. This point is worth emphasizing. We talk about stimulus as a conscious policy to boost growth and create jobs. While this is true, it often leaves the implication that the budget policy we pursue when we are not deliberately trying to stimulate the economy is somehow natural.</p><p>This is absurd. People like Paul Ryan and Max Baucus are setting tax and spending policy; it is not handed down to us by the gods or nature. If we are stuck with an economy that is operating well below its potential, with tens of millions of people unemployed or underemployed, this is due to the fact that we have a budget policy that does not create enough demand in the economy. Whether our budgeteers thought through the consequences of their policy or not doesn't really matter. They gave us budgets that were inconsistent with full employment.<br /><br />High unemployment not only reduces the number of job openings, it puts downward pressure on the wages of workers with jobs. This is especially true for workers at the bottom end of the wage distribution. The link between low unemployment and wage growth for low-paid workers is a main point of my new book with Jared Bernstein, <em><a href="http://www.cepr.net/index.php/publications/books/getting-back-to-full-employment-a-better-bargain-for-working-people" target="_hplink">Getting Back to Full Employment</a></em>. We show that while low levels of unemployment benefit all workers, the largest gains in terms of wages and hours go to those at the bottom.<br /><br />This means that when Congress decides to give us a budget that unnecessarily raises the unemployment rate, it is also deciding to put downward pressure on the wages of low-paid workers. This is a policy decision to redistribute income upward, even if the people in Congress have no clue what they are doing.<br /><br />This is important background. The folks pushing for the higher pay at Walmart and other chains of low-paying stores and fast food operations are not just asking for a helping hand. They are demanding that we end a government policy that has the effect of redistributing income to the large shareholders at Walmart and other members of the one percent.</p> Tue, 03 Dec 2013 09:57:00 -0800 Dean Baker, Beat the Press 931764 at http://www.alternet.org Economy Economy congress Criticism of Walmart economics Economy of the United States Employment compensation Human resource management jared bernstein Labor economics labor living wage macroeconomics max baucus minimum wage paul ryan socialism USD unemployment walmart food operations food stamps manufacturing workers manufacturing Bubbles are Not Funny: The 99% Gets Blasted When They Burst http://www.alternet.org/economy/economic-bubbles <!-- 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">Paul Krugman gets it really wrong on the dangers of asset bubbles. </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/topstories_bigbubblesblossom.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>Paul Krugman <a class="blank" href="http://krugman.blogs.nytimes.com/2013/11/16/secular-stagnation-coalmines-bubbles-and-larry-summers/#more-35994" target="_blank">tells us</a> that Larry Summers joined the camp concerned about secular stagnation in his I.M.F. talk last week, something that I had not picked up from prior coverage of the session. This is good news, but I would qualify a few of the points that Krugman makes in his elaboration of Summers' remarks.</p><p>First, while the economy may presently need asset bubbles to maintain full employment (a point I made in <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=0CCwQFjAA&amp;url=http%3A%2F%2Fwww.cepr.net%2Fbooks%2Fplunderandblunder.pdf&amp;ei=SPOHUqPqGLOqsQTY2oDQCQ&amp;usg=AFQjCNHRStgQQseQwV2ahgFP3D9Dc3ocHw&amp;sig2=OX7zJ-NupakcKOuYQbS5dg&amp;bvm=bv.56643336,d.dmg">Plunder and Blunder: The Rise and Fall of the Bubble Economy</a>), it doesn't follow that we should not be concerned about asset bubbles. The problem with bubbles is that their inflation and inevitable deflation lead to massive redistribution of wealth.</p><p>In the case of the housing bubble in particular we saw millions of people lose much or all of their wealth from buying homes at bubble-inflated prices. The loss of housing wealth is especially devastating because housing is a highly leveraged asset even in normal times and it is an asset often held by middle and moderate income households. It was great that the bubble was able to spur growth and get the economy close to full employment, however the subsequent crash was pretty awful. It would be incredibly irresponsible to go through another round like this.</p><p>The second qualification is that it is reasonable to believe that aggregate consumption levels will depend at least in part on the distribution of income. The upward redistribution in the last three decades, from middle and lower end wage earners to the high end wage earners in the 80s and 90s, and to corporate profits in the last decade, likely had an effect in depressing consumption. The question here is whether the marginal propensity to consume out of income is higher for a retail clerk or factory worker than a doctor or CEO. I would be willing to argue that it is, which means that the upward redistribution of income over this period had a depressing effect on consumption. (As a practical matter, this depressing effect was offset by the asset bubbles in the 1990s and 2000s.)</p><p>The third qualification is that Summers and Krugman seem to be leaving net exports out of the picture. In the old textbooks, rich countries like the United States were supposed to be net exporters of capital to developing countries. This implies that instead of running trade deficits we should be running surpluses This would both mean a higher return on capital in rich countries and more rapid growth in developing countries, which would be able to use imported goods and services to build up their capital stock even as they sustained a decent level of consumption for their populations.</p><p>The real world never followed the textbook story very closely, but it followed especially badly in the years following the 1997 East Asian financial crisis. The harsh terms of the bailout (led in part by <a href="https://www.google.com/search?q=committee+to+save+the+world&amp;hl=en&amp;tbm=isch&amp;tbo=u&amp;source=univ&amp;sa=X&amp;ei=OfaHUq7JM5Gw4AP2sYHYCg&amp;ved=0CCwQsAQ&amp;biw=1600&amp;bih=734#facrc=_&amp;imgdii=_&amp;imgrc=Jzyt6jEzqhUQ8M%3A%3BNbYjRGUnlevnPM%3Bhttp%253A%252F%252Fstatic1.businessinsider.com%252Fimage%252F5016ca8f6bb3f7f06b000000%252Ftime-committee-to-save-the-world.jpg%3Bhttp%253A%252F%252Fwww.businessinsider.com%252Fdavid-zervos-committee-to-save-the-world-part-deux-2012-7%3B400%3B527">Larry Summers</a>) led to a situation in which developing countries began to <a href="http://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=0CC4QFjAA&amp;url=http%3A%2F%2Fwww.cepr.net%2Findex.php%2Fpublications%2Freports%2Fmoney-for-nothing-the-increasing-cost-of-foreign-reserve-holdings-to-developing-nations%2F&amp;ei=o_aHUq7BDNTMsQTDmYGoDQ&amp;usg=AFQjCNGekc-0guC7Gspd7i4XU_1DXYqaTw&amp;sig2=a9EIpZdewigjNmPbZiJZYA&amp;bvm=bv.56643336,d.cWc">accumulate massive amounts of reserves</a>to protect themselves from ever being dictated to by the IMF in the same way. Instead of being importers of capital from rich countries developing countries became huge exporters of capital. This meant that the United States in particular had a huge trade deficit that created a huge drag on demand.</p><p>Finally, as an alternative to trying to increase demand to deal with secular stagnation, countries could try to reduce supply. This should not sound too crazy. Western Europeans work on average 20 percent fewer hours a year than do people in the United States. These countries mandate paid vacation (at least four weeks a year), paid sick days, paid parental leave and other forms of paid time off. France has a 35-hour work week. Remember, the problem is too much supply not too little. Reduced work hours (i.e. more leisure) is an easy way to deal with this "problem."</p><p>The long and short of the matter is that secular stagnation is really a story of too much wealth. It is absurd that this ends up impoverishing countries and leading to mass suffering. Keynes taught us how to deal with this problem almost 80 years ago. We know how to prevent the suffering; we just lack the political force to stop it.</p> Mon, 18 Nov 2013 14:55:00 -0800 Dean Baker, AlterNet 925769 at http://www.alternet.org Economy Economy Business cycle ceo deflation Economic bubbles economics Fellows of the Econometric Society Financial crises financial crisis france I.M.F. income distribution inflation larry summers Late-2000s financial crisis paul krugman Quotation real estate bubble united states factory worker retail clerk No, Obama Didn't Lie to You About Your Health Care Plans http://www.alternet.org/no-obama-didnt-lie-you-about-your-health-care-plans <!-- 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 claim that President Obama lied in saying that people could keep their insurance looks like another Fox News special.</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/9a11bdbd7db3a9b506df03f63b41a915668b3ca4.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p> </p><div dir="ltr"><div><div><p>President Obama has been getting a lot of grief in the last few weeks over his pledge that with the Affordable Care Act (ACA) in place, people would be able to keep their insurance if they like it. The media have been filled with stories about people across the country who are having their insurance policies terminated, ostensibly because they did not meet the requirements of the ACA. While this has led many to say that Obama was lying, there is much less here than meets the eye.</p><p>First, it is important to note that the ACA grand-fathered all the individual policies that were in place at the time the law was enacted. This means that the plans in effect at the time that President Obama was pushing the bill could still be offered even if they did not meet all the standards laid out in the ACA.</p><p>The plans being terminated because they don't meet the minimal standards were all plans that insurers introduced after the passage of the ACA. Insurers introduced these plans knowing that they would not meet the standards that would come into effect in 2014. Insurers may not have informed their clients at the time they sold these plans that they would not be available after 2014 because they had designed a plan that did not comply with the ACA.</p><p>However if the insurers didn't tell their clients that the new plans would only be available for a short period of time, the blame would seem to rest with the insurance companies, not the ACA. After all, President Obama did not promise people that he would keep insurers from developing new plans that will not comply with the provisions of the ACA.</p><p>In addition to the new plans that were created that did not comply with the terms of the ACA, there have been complaints that the grandfathering was too strict. For example, insurers can only raise their premiums or deductibles by a small amount above the rate of medical inflation. As a result, many of the plans in existence at the time of the ACA are losing their grandfathered status.</p><p>In this case also it is wrong to view the insurers as passive actors who are being forced to stop offering plans because of the ACA. The price increases charged by insurers are not events outside of the control of insurers. If an insurer offers a plan which has many committed buyers, then presumably it would be able to structure its changes in ways that are consistent with the ACA. If it decides not to do so, this is presumably because the insurer has decided that it is not interested in continuing to offer the plan.</p><p>As a practical matter, there are many plans that insurers will opt to drop for market reasons that may or may not have anything to do with the ACA. It's hard to see how this could be viewed as a violation of President Obama's pledge. After all, insurers change and drop plans all the time. Did people who heard Obama's pledge understand it to mean that insurers would no longer have this option once the ACA passed?</p><p>If Obama's pledge was understood as ensuring that every plan that was in existence in 2010 would remain in existence, then it would imply a complete federal takeover of the insurance industry. This would require the government to tell insurers that they must continue to offer plans even if they are losing money on them and even if the plans had lost most of their customers. This would at the least be a strange policy. It would be surprising if many people thought this was the meaning of President Obama's pledge.</p><p>Finally, there will be many plans that insurers will stop offering in large part because of the changed market conditions created by the ACA. For example, last week the Washington Post highlighted a plan for the "hardest to insure" that was being cancelled by Pathmark Blue Cross of Pennsylvania.</p><p>This plan is likely being cancelled because it is unable to compete with the insurance being offered through the exchanges. The exchanges charge everyone the same rate regardless of their pre-existing health conditions. A plan that is especially designed for people who have serious health conditions would almost certainly charge a far higher rate. If these high-priced plans no longer exist because they cannot compete with the exchanges would this mean that President Obama had broken his pledge?</p><p>On closer inspection, the claim that President Obama lied in saying that people could keep their insurance looks like another Fox News special. In the only way that the pledge could be interpreted as being meaningful, the pledge is true. The ACA does not eliminate plans that were in existence at the time the bill was approved.</p><p>If we want to play Fox News, President Obama also promised people they could keep their doctor. Since 2010 tens of thousands of doctors have retired or even died. Guess the pledge that people could keep their doctor was yet another lie from the Obama administration.</p></div></div></div><p> </p> Wed, 13 Nov 2013 09:42:00 -0800 Dean Baker, AlterNet 923415 at http://www.alternet.org insurance Why Alan Greenspan Owes America a Big Apology http://www.alternet.org/economy/why-alan-greenspan-owes-america-apology <!-- 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 must be accountability for the man who blew the bubble until it burst--then said it wasn&#039;t his fault</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 most responsible for the enormous economic damage caused by the housing bubble and the subsequent collapse of the market. The United States is still down almost 9m jobs from its trend path. We are losing close to $1tn a year in potential output, with cumulative losses to date <a href="http://www.lostoutputclock.com/" target="_blank">approaching $5tn</a>.</p><p>These numbers correspond to millions of dreams ruined. Families who struggled to save enough to buy a home lost it when house prices plunged or they lost their jobs. Many older workers lose their job with little hope of ever finding another one, even though they are ill-prepared for retirement; young people getting out of school are facing the worst job market <a href="http://www.forbes.com/sites/peterferrara/2013/02/07/the-worst-five-years-since-the-great-depression/" target="_blank">since the Great Depression</a>, while buried in student loan debt.</p><p>The horror story could <a href="http://www.cepr.net/index.php/reports/the-run-up-in-home-prices-is-it-real-or-is-it-another-bubble/">have easily been prevented</a> had there been intelligent life at the <a href="http://www.theguardian.com/business/federal-reserve" target="_blank" title="More from the Guardian on Federal Reserve">Federal Reserve</a> Board in the years when the housing bubble was growing to ever more dangerous proportions (2002-2006). But the Fed did nothing to curb the bubble. Arguably, it even acted to foster its growth with Greenspan cheering the development of exotic mortgages and completely ignoring its regulatory responsibilities.</p><p>Most people who had this incredible infamy attached to their name would have the decency to find a large rock to hide behind; but not Alan Greenspan. He apparently believes that he has not punished us enough. Greenspan has a <a href="http://www.nytimes.com/2013/10/21/books/the-map-and-the-territory-by-alan-greenspan.html" target="_blank">new book</a> which he is now hawking on radio and television shows everywhere.</p><p>The book, which I have not read, is ostensibly Greenspan’s wisdom about the economy and economics. But he also tells us that his problem as Fed chair was that he just didn’t know about the flood of junk mortgages that was fueling the unprecedented rise in house prices during the bubble years. He has used this ignorance to explain his lack of action – or even concern – about the risks posed by the bubble.</p><p>Greenspan’s “I didn’t know” excuse is so absurd as to be painful. The explosion of exotic mortgages in the bubble years was hardly a secret. It was frequently talked about in the media and showed up in a wide variety of data sources, including those produced by the Fed. In fact, there were widespread jokes at the time about “liar loans” or “Ninja loans”. The latter being an acronym for the phrase, “no income, no job, no assets”.</p><p>The fact that banks were issuing fraudulent mortgages by the millions, and that the Wall Street crew was securitizing them as fast as they could get them, was not top secret information available only to those with special security clearance. This was the economy in the years 2002-2006.</p><p>It was impossible to look at the economy in these years and not see the role of the housing bubble and the tsunami of bad mortgages that fueled it. The run-up in house prices led to a near record pace of construction. Typically housing construction is around 4.5% of GDP. It peaked at 6.5% in 2005. Greenspan didn’t notice? Who did he think was going to live in all these units, the building of which had created record vacancy rates <a href="http://money.cnn.com/2004/02/10/pf/yourhome/rentalprices/" target="_blank">as early as 2003</a>?</p><p>And he didn’t notice that the spike in house prices had led to a surge in consumption pushing <a href="http://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=0CC4QFjAA&amp;url=http%3A%2F%2Fwww.cepr.net%2Findex.php%2Fpublications%2Freports%2Fwhen-numbers-dont-add-up&amp;ei=nSNnUuCcL_e34AP4s4HwDw&amp;usg=AFQjCNG8t2iGvw42D2n2P1iiJWRztywExg&amp;sig2=6VPTqVhkfyaIV2dSTSfYiA&amp;bvm=bv.55123115,d.dmg">saving rates to nearly zero</a>? He actually co-authored <a href="http://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=2&amp;cad=rja&amp;ved=0CDYQFjAB&amp;url=http%3A%2F%2Fwww.federalreserve.gov%2Fpubs%2Ffeds%2F2005%2F200541%2F200541pap.pdf&amp;ei=yCNnUricH9fe4APoz4GQCw&amp;usg=AFQjCNEJOAIK4UTK-Yl4E_sm2NKub3uEpA&amp;sig2=22JQldf-p3lT5ErPclAbzw&amp;bvm=bv.55123115,d.dmg" target="_blank">several</a> <a href="http://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=3&amp;cad=rja&amp;ved=0CD8QFjAC&amp;url=http%3A%2F%2Fwww.federalreserve.gov%2Fpubs%2Ffeds%2F2007%2F200720%2F&amp;ei=yCNnUricH9fe4APoz4GQCw&amp;usg=AFQjCNH-w2KP3b-M5FrHqtJOV0dKBkKfnQ&amp;sig2=Fvo_SIVBN2B12OCAAreavQ&amp;bvm=bv.55123115,d.dmg" target="_blank">pieces</a> on exactly this topic with another Fed economist. Between the 100% predictable collapse of residential construction and the plunge in consumption that would follow the loss of the housing wealth that was driving it, we were looking at a loss of more than $1tn in annual demand. What did Greenspan think would fill this gap, purchases of Ayn Rand’s books?</p><p>Greenspan had all the information that he could have possibly needed to spot the housing bubble and to know its collapse would be really bad news for the economy. More than anyone else in the country he was in a position to stop the growth of the bubble.</p><p>Suppose that, instead of <a href="http://www.federalreserve.gov/boarddocs/speeches/2004/20040223/" target="_blank">extolling the wonders</a> of adjustable rate mortgages, Greenspan used his public addresses to warn people that they were buying into an overpriced housing market; and he warned investors that the subprime mortgage backed securities they were buying were filled with <a href="http://www.nytimes.com/2008/10/24/business/economy/24panel.html" target="_blank">fraudulent mortgages</a>. Suppose further that he used the Fed’s research staff to document these facts.</p><p>Greenspan could have used the regulatory powers of the Fed to crack down on the bad mortgages being issued by the banks under the Fed’s jurisdiction, as his fellow <a href="http://online.wsj.com/news/articles/SB118134111823129555" target="_blank">governor Edward Gramlich urged</a>. And, he could have arranged to have a meeting with other federal and state regulators to see what they were doing to prevent mortgage fraud in the financial institutions under their jurisdictions as well.</p><p data-inview-name="12th para">Those are the actions that we had a right to expect from a Fed chair faced with the growth of a dangerous asset bubble. That is what Alan Greenspan would have done if he had been earning his salary. Instead, he did nothing. He cheered on the bubble until it burst and then he said it wasn’t his fault.</p><p>This man has nothing to tell the country about the economy and <a href="http://www.newrepublic.com/article/115285/media-cant-stop-sucking-alan-greenspan" target="_blank">the media is not doing its job</a> to imply otherwise. If Greenspan doesn’t have the decency to keep himself out of public view after all the damage he has done to the country, then the media should do it for him. The only thing he has to say that would be newsworthy is that he’s sorry.</p> Thu, 31 Oct 2013 10:21:00 -0700 Dean Baker, The Guardian 917697 at http://www.alternet.org Economy Economy greenspan How Alan Greenspan Destroyed America http://www.alternet.org/how-alan-greenspan-destroyed-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">The former Fed chair is promoting his new book. He should admit his role in the housing crisis, not insult our intelligence.</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_2013-10-28_at_3.11.32_pm.png" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p> </p><p><a href="http://www.theguardian.com/business/alan-greenspan" title="More from the Guardian on Alan Greenspan">Alan Greenspan</a> will go down in history as the person most responsible for the enormous economic damage caused by the housing bubble and the subsequent collapse of the market. The <a href="http://www.theguardian.com/world/usa" title="More from the Guardian on United States">United States</a> is still down almost 9m jobs from its trend path. We are losing close to $1tn a year in potential output, with cumulative losses to date <a href="http://www.lostoutputclock.com/">approaching $5tn</a>.</p><p>These numbers correspond to millions of dreams ruined. Families who struggled to save enough to buy a home lost it when house prices plunged or they lost their jobs. Many older workers lose their job with little hope of ever finding another one, even though they are ill-prepared for retirement; young people getting out of school are facing the worst job market <a href="http://www.forbes.com/sites/peterferrara/2013/02/07/the-worst-five-years-since-the-great-depression/">since the Great Depression</a>, while buried in student loan debt.</p><p>The horror story could <a href="http://www.cepr.net/index.php?option=com_content&amp;view=article&amp;id=405">have easily been prevented</a> had there been intelligent life at the <a href="http://www.theguardian.com/business/federal-reserve" title="More from the Guardian on Federal Reserve">Federal Reserve</a> Board in the years when the housing bubble was growing to ever more dangerous proportions (2002-2006). But the Fed did nothing to curb the bubble. Arguably, it even acted to foster its growth with Greenspan cheering the development of exotic mortgages and completely ignoring its regulatory responsibilities.</p><p>Most people who had this incredible infamy attached to their name would have the decency to find a large rock to hide behind; but not Alan Greenspan. He apparently believes that he has not punished us enough. Greenspan has a <a href="http://www.nytimes.com/2013/10/21/books/the-map-and-the-territory-by-alan-greenspan.html">new book</a> which he is now hawking on radio and television shows everywhere.</p><p>The book, which I have not read, is ostensibly Greenspan's wisdom about the economy and economics. But he also tells us that his problem as Fed chair was that he just didn't know about the flood of junk mortgages that was fueling the unprecedented rise in house prices during the bubble years. He has used this ignorance to explain his lack of action – or even concern – about the risks posed by the bubble.</p><p>Greenspan's "I didn't know" excuse is so absurd as to be painful. The explosion of exotic mortgages in the bubble years was hardly a secret. It was frequently talked about in the media and showed up in a wide variety of data sources, including those produced by the Fed. In fact, there were widespread jokes at the time about "liar loans" or "Ninja loans". The latter being an acronym for the phrase, "no income, no job, no assets".</p><p>The fact that banks were issuing fraudulent mortgages by the millions, and that the Wall Street crew was securitizing them as fast as they could get them, was not top secret information available only to those with special security clearance. This was the economy in the years 2002-2006.</p><p>It was impossible to look at the economy in these years and not see the role of the housing bubble and the tsunami of bad mortgages that fueled it. The run-up in house prices led to a near record pace of construction. Typically housing construction is around 4.5% of GDP. It peaked at 6.5% in 2005. Greenspan didn't notice? Who did he think was going to live in all these units, the building of which had created record vacancy rates <a href="http://money.cnn.com/2004/02/10/pf/yourhome/rentalprices/">as early as 2003</a>?</p><p>And he didn't notice that the spike in house prices had led to a surge in consumption pushing <a href="http://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=0CC4QFjAA&amp;url=http%3A%2F%2Fwww.cepr.net%2Findex.php%2Fpublications%2Freports%2Fwhen-numbers-dont-add-up&amp;ei=nSNnUuCcL_e34AP4s4HwDw&amp;usg=AFQjCNG8t2iGvw42D2n2P1iiJWRztywExg&amp;sig2=6VPTqVhkfyaIV2dSTSfYiA&amp;bvm=bv.55123115,d.dmg">saving rates to nearly zero</a>? He actually co-authored <a href="http://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=2&amp;cad=rja&amp;ved=0CDYQFjAB&amp;url=http%3A%2F%2Fwww.federalreserve.gov%2Fpubs%2Ffeds%2F2005%2F200541%2F200541pap.pdf&amp;ei=yCNnUricH9fe4APoz4GQCw&amp;usg=AFQjCNEJOAIK4UTK-Yl4E_sm2NKub3uEpA&amp;sig2=22JQldf-p3lT5ErPclAbzw&amp;bvm=bv.55123115,d.dmg">several</a> <a href="http://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=3&amp;cad=rja&amp;ved=0CD8QFjAC&amp;url=http%3A%2F%2Fwww.federalreserve.gov%2Fpubs%2Ffeds%2F2007%2F200720%2F&amp;ei=yCNnUricH9fe4APoz4GQCw&amp;usg=AFQjCNH-w2KP3b-M5FrHqtJOV0dKBkKfnQ&amp;sig2=Fvo_SIVBN2B12OCAAreavQ&amp;bvm=bv.55123115,d.dmg">pieces</a> on exactly this topic with another Fed economist. Between the 100% predictable collapse of residential construction and the plunge in consumption that would follow the loss of the housing wealth that was driving it, we were looking at a loss of more than $1tn in annual demand. What did Greenspan think would fill this gap, purchases of Ayn Rand's books?</p><p>Greenspan had all the information that he could have possibly needed to spot the housing bubble and to know its collapse would be really bad news for the economy. More than anyone else in the country he was in a position to stop the growth of the bubble.<br /><br />Suppose that, instead of <a href="http://www.federalreserve.gov/boarddocs/speeches/2004/20040223/">extolling the wonders</a> of adjustable rate mortgages, Greenspan used his public addresses to warn people that they were buying into an overpriced housing market; and he warned investors that the subprime mortgage backed securities they were buying were filled with <a href="http://www.nytimes.com/2008/10/24/business/economy/24panel.html">fraudulent mortgages</a>. Suppose further that he used the Fed's research staff to document these facts.</p><p>Greenspan could have used the regulatory powers of the Fed to crack down on the bad mortgages being issued by the banks under the Fed's jurisdiction, as his fellow <a href="http://online.wsj.com/news/articles/SB118134111823129555">governor Edward Gramlich urged</a>. And, he could have arranged to have a meeting with other federal and state regulators to see what they were doing to prevent mortgage fraud in the financial institutions under their jurisdictions as well.</p><p data-inview-name="12th para">Those are the actions that we had a right to expect from a Fed chair faced with the growth of a dangerous asset bubble. That is what Alan Greenspan would have done if he had been earning his salary. Instead, he did nothing. He cheered on the bubble until it burst and then he said it wasn't his fault.</p><p>This man has nothing to tell the country about the economy and <a href="http://www.newrepublic.com/article/115285/media-cant-stop-sucking-alan-greenspan">the media is not doing its job</a> to imply otherwise. If Greenspan doesn't have the decency to keep himself out of public view after all the damage he has done to the country, then the media should do it for him. The only thing he has to say that would be newsworthy is that he's sorry.</p> Mon, 28 Oct 2013 12:08:00 -0700 Dean Baker, The Guardian 916078 at http://www.alternet.org News & Politics greenspan Is a Debt Default the Only Way to Get Americans Working Again? http://www.alternet.org/economy/debt-default-and-currency <!-- 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">If the dollar actually lost its value, that would be good news for workers. </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/topstories_unemployedunemploymentchecks.jpg" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--> <p>All the usual suspects are giving us all the usual warnings about the disaster that would ensue if the government defaults on its debt. Much of what they say is undoubtedly true; it would create a huge amount of fear and uncertainty in financial markets.</p><p>Look for stock and bond prices to tumble and interest rates to soar. The viability of many banks and other financial institutions may be called into question if even government debt cannot be viewed as entirely safe and highly liquid asset. This is not the sort of thing that an economy still struggling to recover from the recession needs right now.</p><p>But there is one part of the horror story that should be discarded. We have been repeatedly warned that the dollar could lose its status as the world's reserve currency in the event of default. While this is a dubious claim (will countries rush to the euro?), it would actually be good news if it were true.</p><p>The story is quite simple. There was a large run-up in the value of the dollar following the East Asian financial crisis in 1997. This was a direct outcome of the conditions of the bailout. Because of the harsh terms imposed by the IMF (at the insistence of the U.S. Treasury), countries throughout the developing world <a href="http://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=0CC4QFjAA&amp;url=http%3A%2F%2Fwww.cepr.net%2Findex.php%2Fpublications%2Freports%2Fmoney-for-nothing-the-increasing-cost-of-foreign-reserve-holdings-to-developing-nations%2F&amp;ei=fQxHUu6wBI364AObkoCgDw&amp;usg=AFQjCNGekc-0guC7Gspd7i4XU_1DXYqaTw&amp;sig2=ZMiQ4LTwqk4OcfBcoinh7w&amp;bvm=bv.53217764,d.dmg" target="_hplink">began to accumulate massive amounts of reserves</a> (i.e. dollars) in order to protect themselves against ever needing an IMF bailout. Their increased demand for dollar reserves raised the value of the dollar sharply against most other currencies.</p><p>The higher-valued dollar raised the price of U.S. exports to people in other countries, sharply reducing exports. It also made imports comparatively cheap, leading to a huge increase in imports.</p><p>The fall in exports and jump in imports led to a huge gap in demand. The logic is that people were spending income earned in the United States in other countries. This shortfall peaked in 2006 at 6 percent of GDP (at $1 trillion in today's economy).</p><p>The gap in demand created by the trade deficit was filled in the late 1990s by the stock bubble. It was filled in the last decade by the housing bubble. At this point, we have no bubbles on the horizon (a good thing), which means that we have to live with the gap in demand created by the trade deficit and the resulting unemployment.</p><p>This is where the horror story of the dollar losing its status as the reserve currency comes in. In principle, we should be having discussions in Washington about how to lower the value of the dollar to make our goods more competitive internationally and bring down the trade deficit.</p><p>Unfortunately these discussions are not taking place. For some reason exchange rate policy does not come up in public debate. This means that the two policies that could put an end to mass unemployment -- stimulus and exchange rate policy -- are both taboo in Washington politics.</p><p>But the prospect of a default causing the dollar to lose it status as the reserve currency could give us a backdoor route to achieve this result. If the dollar is no longer the pre-eminent reserve currency, then countries will dump much of their dollar holdings, pushing down its value in currency markets.</p><p>A lower-valued dollar will cause exports to soar and imports to plummet, creating millions of new manufacturing jobs. Millions more jobs would be created in other sectors due to the multiplier effect. This could well bring us back to full employment -- a goal we may not otherwise achieve until the next decade.</p><p>Does this mean that all good people should be cheering for a debt default? Not quite. First, the financial market fallout will not be pretty. It's hard to say exactly what would happen because it is uncharted territory. It would be best not to explore this terrain.</p><p>However, the other reason is that there are no guarantees about the dollar losing its status as the reserve currency. Remember, we're hearing this from people who couldn't even see an $8 trillion housing bubble, their knowledge of the economy is not especially reliable. It is entirely possible that we go through the financial crisis associated with a debt default and the dollar still ends up being the world's pre-eminent reserve currency. In that case we get the pain but no gain.</p><p>So we are probably best off if there is no default. But we should remember: If the dollar loses its status as a reserve currency as a result of default, that's a good thing.</p> Tue, 01 Oct 2013 04:42:00 -0700 Dean Baker, Beat the Press 903669 at http://www.alternet.org Economy Economy Labor Asian financial crisis Balance of trade business currency economics euro Financial crises Foreign exchange market Government debt International Monetary Fund International economics reserve currency Stock market crashes U.S. Treasury USD United States dollar united states washington manufacturing jobs Obamacare: It's Better Than You Think http://www.alternet.org/obamacare-its-better-you-think <!-- 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">With so much misinformation floating around, here&#039;s the straight dope.</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/doc.png" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p> </p><p>In just one week the main part of Obamacare will begin to kick in. This is the state level exchanges that will allow the uninsured to be covered. Beginning on October 1, people will be able to sign up to get insurance in their state regardless of their health.</p><p>Most people signing up on the exchanges will qualify for subsidies based on their income and family size. This means that the cost of insurance will be less than the advertised price.</p><p>This is good news. It means that tens of millions of people who are uninsured now will likely be insured in the next year or two as a result of the Affordable Care Act (ACA). However, this is actually the less important aspect of the program. The more important part is that those of us who now have insurance will have real health care insurance for the first time.</p><p>Most of the insured get covered through their job. This creates an obvious problem. If they develop a chronic illness, they may be unable to keep their job. Once they are no longer employed, workers will be left trying to buy insurance in the individual market.</p><p>Insurers don't want to insure people who are sick. If a person with a chronic health condition applies for insurance in the individual market, they would be facing premiums of tens of thousands of dollars a year, making it unaffordable for all but the very wealthy.</p><p>This situation will end with the start of the exchanges. Workers who lose their job because of an illness will still be able to find affordable insurance. This will provide a huge element of security that is currently lacking. In effect, most workers will have true health insurance for the first time.</p><p>Workers of all ages will benefit from this transformation of the insurance market, but it will be especially important for older workers in poor health. There are a large number of older workers who struggle to stay employed despite bad health, because this is the only way that they will be able to afford insurance until they are old enough to qualify for Medicare.</p><p>Many of these people will now find insurance to be affordable with the subsidies on the exchanges even if they do not work. Some critics of Obamacare have argued that it will undermine incentives to work. In the case of older workers in poor health they are right, and this will be good.</p><p>There is much real basis for criticism of the ACA. Private insurers are the sole providers of insurance. Not only are we not getting universal Medicare, we did not even get a public option, the right to purchase a Medicare-type plan that would compete with private insurers.</p><p>The drug companies and medical equipment suppliers both end up as winners under Obamacare. They will be able to secure even greater profits from their government-provided patent monopolies since the ACA does little to rein in costs.</p><p>As a result, we will still be paying close to twice as much for drugs and medical devices as people in other wealthy countries. This is a guaranteed recipe for bad health care since the enormous profits provided by these patent monopolies give drug companies an incentive to push their drugs even when they may be harmful.</p><p>And we will still be paying twice as much for our doctors as people in other wealthy countries. These failures on cost controls will add hundreds of billions of dollars to the cost of health care each year.</p><p>The fact that so many states refused to go along with the expansion of Medicaid will leave millions of working poor uncovered. Undocumented workers were explicitly prohibited from being covered through the exchanges. And the plan will effectively penalize many workers who get insurance through union-sponsored plans, since they will not be eligible for subsidies through the exchanges.</p><p>These are serious complaints about the inadequacy of Obamacare that will have to be addressed in the years ahead. But none of these problems changes the fact that the ACA is an enormous step forward. Most of the country will now have real security in their access to health care. The agenda now has to be to extend this security to the rest of the country and to squeeze the parasites out of the health care system.</p><div> </div> Wed, 25 Sep 2013 09:20:00 -0700 Dean Baker, Huffington Post 901144 at http://www.alternet.org News & Politics obamacare Larry Summers and Jeff Bezos Get Virtually No Scrutiny by the Media, Just Awe and Praise http://www.alternet.org/news-amp-politics/larry-summers-and-jeff-bezos-get-virtually-no-scrutiny-media <!-- 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 will be a big step forward when reporters and columnists are able to look at the people they consider brilliant with open eyes and talk about their accomplishments and failures in a serious 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/screen_shot_2013-08-14_at_10.38.13_am.png" /></div></div></div> <!-- BODY --> <!--smart_paging_autop_filter--><p>The news in the last couple of weeks has had endless references to two people who we have been repeatedly told are brilliant: former Treasury Secretary and top Obama advisor Larry Summers and Amazon founder Jeff Bezos. The paeans to the genius of both men say a great deal about the quality of public debate in elite circles.</p><p>Larry Summers has been in the news because President Obama told a number of reporters of his desire to have Summers replace current Federal Reserve Board chair Ben Bernanke when his term ends in January. This caught many by surprise, since Janet Yellen seemed the obvious pick for this position.</p><p>In addition to having served the last two years as vice-chair at the Fed, Yellen had previously been president of the Federal Reserve Bank of San Francisco, headed President Clinton's Council of Economic Advisors, and been a member of the Board of Governors. Yellen also had an outstanding academic background, having been a professor at both Berkeley and Harvard. In addition, she would be the first woman to chair the Fed.</p><p>But Summers supporters countered that the country needed his brilliant mind. New York Times columnist David Brooks led the charge, <a href="http://www.npr.org/2013/08/02/208351258/week-in-politics-jobs-the-fed-and-intra-party-sniping" target="_hplink">telling the audience</a> of an NPR show about Summers' "meta-cognition skills," which Brooks defined as his ability to know what he doesn't know.</p><p>While most of us really don't have any idea of how smart Summers actually is, we do have some basis to assess his record. He was a big proponent of deregulation of the financial sector in 1990s and in the last decade, right up to when the collapse of the housing bubble led to the financial crisis. Apparently his meta-cognition skills didn't help him much on that one.</p><p>Summers also was an opponent of actions to break up the big banks even when they when they were bankrupt and would have collapsed if the market was allowed to work its magic. Largely as a result of Summers' actions, the big banks are bigger and more profitable than ever.</p><p>Summers also played a role in getting President Obama to accept a less than adequate stimulus and then shifting his focus to deficit reduction, even when the economy clearly needed more stimulus. The weak recovery and continued high unemployment is the price that we are paying for these policies. Whatever meta-cognition skills Summers may have, they do not seem to have benefited the country thus far.</p><p>Jeff Bezos has been in the news because of the surprise announcement of his purchase of the Washington Post for $250 million, roughly 1 percent of Bezos' estimated wealth. This announcement was quickly followed by news stories praising Bezos' extraordinary business acumen in building up Amazon as the dominant force in on-line retailing.</p><p>While Bezos has succeeded over many competitors in the online world, it was more than just his brilliance that allowed him to get a hand up on the competition. In the vast majority of states Amazon has an advantage over brick-and-mortar competition (including brick-and-mortar stores with Internet sales) because it does not have to collect sales tax.</p><p>This is a really big deal. In many states, including California and New York, sales taxes are in the range of 7-8 percent. This means that if Jeff Bezos and a mom and pop retail outlet could both deliver the same product to your house for $100, Bezos would be able to pocket an extra $7-$8 on the sale because the mom and pop retail outlet has to collect the tax, whereas Jeff Bezos gets to put everything you pay into his pocket.</p><p>This comes to real money. Last year Amazon.com's sales in North America were $34 billion. Amazon does collect taxes in some states and in many states sales taxes are lower, but if we assume an average uncollected tax rate of 5 percent, Amazon and Bezos effectively got a subsidy from taxpayers of more than $1.7 billion last year. This was a year in which Amazon recorded a small loss.</p><p>In fact, if we go back through Amazon's history, the size of the implicit subsidy through Amazon's sales tax exemption vastly exceeds the company's cumulative profits. This raises the question of whether Amazon would even exist today without the generosity of taxpayers in being willing to subsidize Amazon's business at the expense of brick-and-mortar competitors.</p><p>None of this changes the fact that there are many would-be Jeff Bezos out there who benefited from the same subsidy in setting up online retailers, but who did end up out of business. The subsidy by itself didn't make Bezos ridiculously wealthy. But it is absurd to imagine that Amazon would have been anywhere near as successful if it had to compete on a level playing field with traditional retailers. Those who leave this fact out of the picture are re-writing history.</p><p>It will be a big step forward when reporters and columnists are able to look at the people they consider brilliant with open eyes and talk about their accomplishments and failures in a serious way. In the recent Summers and Bezos chapters, they have been awed into vapidity.</p><div> </div> Wed, 14 Aug 2013 07:30:00 -0700 Dean Baker, CEPR 882505 at http://www.alternet.org News & Politics Economy Media larry summers Jeff Bezos