AlterNet.org: Dean Baker https://www.alternet.org/authors/dean-baker en Trump Team Resurrects Voodoo Economics Pushing Tax Cuts and Ludicrous Growth Projections https://www.alternet.org/economy/trump-team-resurrects-voodoo-economics-pushing-tax-cuts-and-ludicrous-growth-projections <!-- 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">&quot;Trump&#039;s policies will lead to larger deficits, fewer people with health care, more dangerous workplaces, and a dirtier environment.&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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/screen_shot_2017-07-14_at_10.47.01_am_0.png?itok=-1TMpzvi" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>Office of Management and Budget Director Mick Mulvaney had a Wall Street Journal <a href="https://www.wsj.com/articles/introducing-maganomics-1499899298">column</a> highlighting the benefits of "MAGAnomics." The piece can best be described as a combination of Groundhog Day and outright lies.</p><p>In terms of Groundhog Day, we have actually tried MAGAnomics twice before and it didn't work. We had huge cuts in taxes and regulation under both President Reagan and George W. Bush. In neither case was there any huge uptick in growth and investment. In fact, the Bush years were striking for the weak growth in the economy and especially the labor market. We saw what was at the time the longest period without net job growth since the Great Depression. And of course his policy of giving finance free rein gave us the housing bubble and the Great Recession.<br /><br />The story of the 1980s was somewhat better, but hardly follows the MAGAnomics script. The economy did bounce back in 1983, following a steep recession in 1981-1982. That is generally what economies do following steep recessions that were not caused by collapsed asset bubbles. Furthermore, the bounceback was based on increased consumption, not investment as the MAGAnomics folks claim. In fact, investment in the late 1980s fell to extraordinarily low levels. It is also worth pointing out that following both tax cuts, the deficit exploded, just as conventional economics predicts.<br /><br />By contrast, Clinton raised taxes in 1993 and the economy subsequently soared. It would be silly to attribute the strong growth of the 1990s to the Clinton tax increase, other factors like an IT driven productivity boom and the stock bubble were the key factors, but obviously the tax increase did not prevent strong growth.<br /><br />The outright lies part stem from the comparison to prior periods' growth rates. Mulvaney notes that the 2.0 percent growth rate projected for the next decade is markedly lower than the 3.5 percent rate that we had seen for most of the post-World War II era.This comparison doesn't make sense.</p><p>We are now seeing very slow labor force growth due to the retirement of the baby boom cohort and the fact that the secular rise in female labor force participation rate is largely at an end. MAGAnomics can do nothing about either of these facts. Slower labor force growth translates into slower overall growth.<br /><br />Mulvaney also complains about government benefits keeping people from working. The idea that large numbers of people aren't working because of the generosity of welfare benefits shows a startling degree of ignorance. The United States has the least generous welfare state of any wealthy country, yet we also have among the lowest labor force participation rates. The idea that we will get any substantial boost to the labor force from gutting benefits further is absurd on its face.<br /><br />Mulvaney apparently missed the fact that energy prices have plummeted in the last three years. Oil had been over $100 a barrel, today it is less than $50. While it is always possible that it could fall still further, any boost to the economy from further declines will be trivial compared to what we have seen already. It would be amazing if Mulvaney was ignorant of the recent path in energy prices.<br /><br />In short, there is nothing here at all. Mulvaney has given us absolutely zero reason that Trump's policies will lead to anything other than larger deficits, fewer people with health care, more dangerous workplaces, and a dirtier environment.</p><p><strong>CBO Slaps Trump Budget on Growth Projections</strong></p><p>Several news outlets have reported that the Congressional Budget Office (CBO) <a href="https://www.scribd.com/document/353685534/CBO-Budget-Analysis#from_embed">does not</a> accept the Trump administration's claims that its program will lead to a big surge in growth. It is worth mentioning in reference to this dispute that the "robots will take all the jobs" gang agrees with Trump in this dispute. Many people in the debate are probably not aware of this fact because it requires an understanding of third grade arithmetic.</p><p>Economic growth is the sum of labor force growth and productivity growth. There is not too much dispute about the rate of growth of the labor force over the next decade, since it is mostly due to population growth. Apart from large changes in immigration policy, we can't do much about the number of working age people who will be in the U.S. over the next decade.</p><p>The main question is projecting economic growth is therefore the rate of productivity growth. CBO essentially projects that the slowdown of the last decade will persist, with productivity growth averaging roughly 1.5 percent annually. The Trump crew is betting on a more rapid pace of productivity growth, as are the robots will take all the jobs gang. After all, robots taking the jobs of workers is pretty much the definition of productivity growth.</p><p>So, there are many reasons for mocking Trump and his administration, but if any of the robots will take the jobs gang mock the Trump growth projections, they are showing their ignorance. They agree with Trump's projections of more rapid growth, they are just too confused about the arithmetic and economics to know it.</p><p> </p> Fri, 14 Jul 2017 10:29:00 -0700 Dean Baker, Beat the Press 1079691 at https://www.alternet.org Economy Economy Labor The Right Wing dean baker Beat the Press Trump 2018 budget CBO budget analysis Center for Economic and Policy Research Why Does the Washington Post Want Disabled People to Suffer More? https://www.alternet.org/economy/washington-posts-war-disabled <!-- 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 paper invented a problem with disability benefits to fit their false, predetermined narrative.</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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/shutterstock_70926529-edited.jpg?itok=LobywMMs" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>At a time when an ever-larger share of national income is going to the richest 1 percent, and large segments of the working class population are seeing rising mortality rates, the <strong>Washington Post</strong> naturally turns to the country’s most pressing problem: the number of people receiving disability payments from the government.</p><p>Its second <a href="http://www.washingtonpost.com/sf/local/2017/06/02/generations-disabled/?tid=pm_local_pop&amp;utm_term=.53d9623a9a36">piece</a> on the topic profiled a family with multiple generations receiving disability benefits. It seemed to go out of its way to include every possible negative aspect of their lives in order to give an unfavorable view of the family, and leave readers with the impression that the country has a serious problem of families who do nothing but collect disability checks generation after generation.</p><p>The piece begins with a horrible story of young children playing with a puppy and then accidentally dropping it to the floor. They originally think the puppy was killed from the drop, but apparently it was only stunned and managed to survive. Then we get the story of the mother telling the kids to grab sodas to bring to a Sunday morning church service.</p><p>We then get the poetic description of the rural Missouri countryside where this family lives:</p><blockquote><p>She saw that gravel road turn into another and another. She saw trailers, dirt-battered and deteriorating. She saw land as flat as it was empty, land that migrant workers traveled hundreds of miles to cultivate, reaping both that year’s watermelon harvest and jobs that few in the community were willing to do.</p></blockquote><p>So thankfully we have people who are prepared to do the work that needs to be done, but we have to bring them in from other countries since these people who live there are too lazy.</p><p>And we are told of the mother who is the focus of the piece:</p><blockquote><p>She took the family to McDonald’s because they liked it, even though she knew they couldn’t afford to eat out. She went through more pain pills than she needed, and every few weeks, when those pills ran low, like today, she returned to the doctor for more.</p></blockquote><p>It would be interesting to know how the <strong>Post</strong> determined that this woman took more pain pills than she needed. That would seem to be a medical judgement that would require someone with medical expertise examining her.</p><p>There are a couple of points worth keeping in mind when reading this article. First, the United States ranks <a href="http://cepr.net/blogs/cepr-blog/disability-spending-is-not-responsible-for-low-employment">near the bottom of wealthy countries</a> when it comes to the share of GDP that goes to disability programs. It also ranks <a href="https://data.oecd.org/emp/employment-rate.htm">near the bottom</a> in the share of our working-age population that is employed. This would seem to indicate that it is not the generosity of our disability programs that is keeping people from working.</p><p>It is also worth noting that we know from research of many ways to improve the life chances, including employment rates, of children born into poverty. Good prenatal care and nutrition following birth have strong positive effects. This would mean ramping up programs like the Women, Infant and Children’s Nutrition Program and food stamps. We know that quality early childhood education also matters a great deal, as does access to healthcare through programs like Medicaid.</p><p>Having a parent in prison is also bad news, so mass incarceration is not going to help the children of people on disability have rewarding lives. Also, good family planning is a big help, so that women do not have unwanted children.</p><p>So there are many ways in which we could look to reduce the number of children who grow up poor and remain dependent on government programs throughout their lives. Unfortunately, the current direction of policy seems to be going in the opposite direction. We can always reduce the number of people getting disability by cutting benefits, but that will likely make the lives of these people even worse.</p><p>The obvious next segment in this series would have a <strong>Post </strong>reporter going to Germany or the Netherlands, or some of the other countries that manages to have a larger percentage of their population working, even though they have considerably more generous disability systems. The article can tell readers how they manage to structure their programs so that everyone doesn’t quit their jobs and fake disability so that they can live off the government. For some reason, I don’t think this is where the <strong>Post</strong> series is going.</p><p><em>A version of this post originally appeared on CEPR’s blog <strong>Beat the Press</strong> (<a href="http://cepr.net/blogs/beat-the-press/the-washington-post-s-war-on-disability-continues">6/4/17</a>). </em></p><p> </p> Tue, 06 Jun 2017 10:44:00 -0700 Dean Baker, FAIR 1077936 at https://www.alternet.org Economy Economy disability rights disabled americans washington post media media criticism Trump and Paul Ryan Are Engaged in a Footrace to Destroy Our Federal Government https://www.alternet.org/news-amp-politics/trump-and-paul-ryan-are-engaged-footrace-destroy-our-federal-government <!-- 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 Trump budget is not the first time the Republicans have proposed largely eliminating the federal government.</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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/shutterstock_180341060_0.jpg?itok=SLFj3K6t" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p dir="ltr" id="docs-internal-guid-a359d68f-502d-de80-0193-cb03b2ae3fa8">The budget proposal put forward by the Trump administration has been widely attacked on a variety of grounds. It is clearly making ridiculous assumptions on tax revenue, which don't make sense even with its implausible assumptions on economic growth. It also calls for large cuts to a variety of programs on which low and moderate income families depend like food stamps and Medicaid.</p><p dir="ltr">But in addition to these features, the budget also calls for a major downsizing of the federal government as we know it. If we pull out Social Security, Medicare and Medicaid, and the military, the rest of the government is projected to shrink from 6.3 percent of GDP at present to 3.6 percent of GDP by 2027. This 3.6 percent of GDP includes the cost of education programs, infrastructure, the Justice Department, research and development, national parks, the Environmental Protection Agency, the Food and Drug Administration, TANF, foreign aid, and all the other things we think of as the federal government.</p><p dir="ltr">It doesn't seem plausible that we can downsize the federal government by more than 40 percent relative to current levels and still expect it to function. As much as Republicans may hate the federal government, they still expect it to enforce laws, keep our food and drugs safe, ensure the infrastructure is usable, and support basic research in health care and other areas. This cannot be done if we downsize the government as projected in the Trump budget. This is either a joke or a plan to ensure that the government no longer provides basic services.</p><p dir="ltr">Unfortunately, the Trump budget is not the first time the Republicans have proposed largely eliminating the federal government. Paul Ryan went even further in the budgets that he repeatedly proposed as head of the House Budget Committee and got the Republican controlled House to approve.</p><p dir="ltr">Ryan's budgets virtually eliminated everything except Social Security, Medicare and Medicaid, and the military by 2050. According to the Congressional Budget Office's <a href="https://www.cbo.gov/sites/default/files/112th-congress-2011-2012/reports/04-05-ryan_letter.pdf" target="_blank">analysis</a> of the Ryan budget (done under Mr. Ryan's supervision), spending on everything other than Social Security, Medicare and Medicaid would be reduced to 3.5 percent of GDP in 2050. With military spending likely running in the neighborhood of 3.0 percent of GDP, this left around 0.5 percent of GDP for everything from education to foreign aid.</p><p dir="ltr">Rather than earning Ryan and the Republicans ridicule, these proposals for eliminating the federal government won him widespread applause in Washington policy circles. Folks like The Washington Post editorial page writers welcomed Ryan as a serious budget wonk. The deficit hawk Peter Peterson crew even gave Ryan an <a href="https://thinkprogress.org/greg-ip-on-paul-ryans-fiscy-f31d2816885d" target="_blank">award</a> for his budget plans.</p><p dir="ltr">Obviously, they could see that Ryan's plan was either a ridiculous lie, assuming that he had no intention of following through on his plans, or alternatively incredibly dangerous if he was serious. But the Washington establishment types were so anxious to have a politician who was prepared to take an axe to large chunks of the government that they didn't care about such details.</p><p dir="ltr">Given this background, the Trump administration can hardly be blamed for thinking that it could get away with the same sort of dishonesty that brought Paul Ryan to the top echelons of the Washington power structure. If it wants to show a budget that balances in a decade by making absurd assumptions on tax revenue and projects downsizing the federal government to the point of elimination, this is just par for the course in Washington policy debates.  </p><p dir="ltr">In this sense, it would be nice if we could say that President Trump is bringing new levels of dishonesty to budget politics, but that is not true. The key problem is that the Washington elite types are dead set on sharp cutbacks to programs like Medicare, Medicaid and Social Security, which enjoy massive public support across the political spectrum. Even the vast majority of Republicans do not want to see cuts to these programs, which is a major reason they voted for Donald Trump in the primaries.</p><p dir="ltr">In order to overcome this mass based opposition, the elites are perfectly happy to lie to advance their agenda. They can hardly blame Donald Trump for adopting their tactic. </p> Mon, 29 May 2017 11:46:00 -0700 Dean Baker, CEPR 1077585 at https://www.alternet.org News & Politics News & Politics donald trump paul ryan budget republicans gdp Blaming the Boomers for Growing Poverty in America Is Just a Media Distraction in Service of the 1% https://www.alternet.org/economy/alternative-facts-baby-boomers-boston-globe <!-- 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’s alternative facts day at the Boston Globe. </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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/shutterstock_95098831-edited.jpg?itok=HJriTlkU" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>The main economic story of the last four decades is the massive upward redistribution of income that has taken place. The top 1 percent’s share of national income has more than doubled over this period, from roughly 10 percent in the late 1970s to over 20 percent today. And this is primarily a before-tax income story: The rich have used their control over the levers of economic power to ensure that an ever-larger share of the country’s wealth goes into their pockets. (Yes, this is the topic of my book, <a href="http://deanbaker.net/books/rigged.htm"><em>Rigged</em></a>.) (It’s free.)</p><p>Anyhow, the rich don’t want people paying attention to these policies (hey, they might try to <em>change</em> them), so they endlessly push out nonsense stories to try to divert the public’s attention from how they structured the rules to advance their interests. And, since the rich own the newspapers, they can make sure that we hear these stories.</p><p>This meant that last week the <strong>New York Times</strong> (<a href="https://www.nytimes.com/2017/03/28/upshot/evidence-that-robots-are-winning-the-race-for-american-jobs.html?">3/28/17</a>) gave us the story of how robots are taking all the jobs and driving down wages. Never mind that productivity growth is at its slowest pace in the last seven decades (<strong>Beat the Press</strong>, <a href="http://cepr.net/blogs/beat-the-press/job-loss-in-manufacturing-more-robot-blaming">3/19/17</a>). Facts and data don’t matter in the alternative world, where we try to divert folks’ attention from things like the Federal Reserve Board (who are not robots, last I checked) raising interest rates to make sure that we don’t have too many jobs.</p><p><a href="http://fair.org/wp-content/uploads/2017/04/BGBabyBoom.png"></a></p><p>One of the other big alternative facts for the diverters is the <a href="http://fair.org/home/convincing-the-young-to-blame-the-old-not-the-rich/">generational story</a>. This is the one where we tell folks to ignore all those incredibly rich people with vast amounts of money—the reason most people are not seeing rising living standards is the damn Baby Boomers who expect to get Social Security and Medicare, just because they paid for it. The <strong>Boston Globe</strong> (<a href="https://www.bostonglobe.com/ideas/2017/02/26/how-baby-boomers-destroyed-everything/lVB9eG5mATw3wxo6XmDZFL/story.html">2/26/17</a>) gave us this story with a piece by Bruce Cannon Gibney, conveniently titled “How the Baby Boomers Destroyed Everything.” (Full disclosure: I am one of those Baby Boomers.)</p><p>There is not much confusion about the nature of the argument, only its substance. Gibney complains about</p><blockquote><p>the unusual prevalence of sociopathy in an unusually large generation. How does that disorder manifest? Improvidence is reflected in low levels of <a href="https://fred.stlouisfed.org/series/PSAVERT" target="_blank">savings</a> and high levels of <a href="http://ns.umich.edu/new/releases/6654" target="_blank">bankruptcy</a>. Deceit shows up as a distaste for facts, a subject on display in everything from Enron’s quarterly reports to daily press briefings. Interpersonal failures and unbridled hostility appeared in unusually high levels of divorce and crime from the 1970s to early 1990s.</p></blockquote><p>Starting with the bankruptcy story, the piece to which Gibney helpfully linked noted a doubling of bankruptcy rates for those over 65 since 1991. It reported:</p><blockquote><p>Expensive healthcare costs from a serious illness before a patient received Medicare and the inability to work during and after a serious illness are the prime contributors to financial crises among those 55 and older.</p></blockquote><p>Yes, we have clear evidence of a moral failing here.</p><a href="http://fair.org/wp-content/uploads/2017/04/chart-comparing-lead-and-crime-mother-jones.jpg"></a><p><em>The correlation between lead exposure and violent crime. (source: <a href="http://www.motherjones.com/kevin-drum/2013/01/lead-crime-connection"><strong>Mother Jones</strong></a>)</em></p><p>The crime rate story is interesting. We had a surge in crime beginning in the 1960s and running through the 1980s, with a sharp fall beginning in the 1990s. Gibney would apparently tie this one to the youth and peak crime years of the Baby Boomers. There is an alternative hypothesis for which there is considerable evidence: exposure to lead. While the case is far from conclusive, it is likely that <a href="http://scholarcommons.usf.edu/cgi/viewcontent.cgi?article=5632&amp;context=etd">lead exposure was an important factor</a>. More importantly, the point is that crime was a story of what was done to Baby Boomers, not just kids acting badly.</p><p>I really like the complaint about the low level of savings among Baby Boomers. I guess Gibney is the <strong>Boston Globe</strong>‘s Rip Van Winkle who missed the housing bubble collapse and resulting recession. A main complaint among economic policy types in the last decade has been that people were not spending enough. The argument was that people were being too cautious in the wake of the crash, and not spending the sort of money needed to bring the economy back to full employment.</p><p>But Gibney wants to blame Baby Boomers for spending too much. Oh well, it’s alternative facts day at the <strong>Boston Globe</strong>!</p><p>The rest of the piece is in the same vein. Boomers are blamed for “unaddressed climate change.” Well, Boomers also were the force behind the modern environmental movement. Many of us Boomers might look more to folks like ExxonMobil and the Koch brothers who have used their vast wealth to try to stifle efforts to combat climate change—but hey, why focus on rich people acting badly when we can blame a whole generation?</p><p>Gibney blames Boomers for every bad policy of the last four decades, including the war on crime, which took off in the late 1970s, when many of the Boomers had not even reached voting age. We even get blamed for the repeal of Glass-Steagall, another great generational cause.</p><p>The amount of confusion in this piece is impressive. We get this one:</p><blockquote><p>From 1989 to 2013, wealth gaps between older and younger households grew in the same way as those between the top 5 percent and the bottom 95 percent. Today’s seniors (Boomers) are much wealthier relative to the present young than the seniors of the 1980s were to then-young boomers. All those tax breaks, bailouts, easy money, deregulation, and the bubbles they spawned supported that Boomer wealth accumulation while shifting the true costs to the future, to the young.</p></blockquote><p>Wealth is a virtually meaningless measure for the young. Gibney is crying for the Harvard Business school grad with $150,000 in debt. Young people do have too much debt, but the bigger issue is the horrible labor market they face (partly the result of Boomers saving too much money). Furthermore, while the ratio of Boomer wealth to wealth of the young has risen (because of college debt), the typical Boomer reaching retirement actually <a href="http://cepr.net/publications/reports/the-wealth-of-households-an-analysis-of-the-2013-survey-of-consumer-finances">has less wealth than their parents</a>.</p><p>It’s also important to remember in these comparisons that Boomer parents likely had a traditional pension (an income stream that does not get included in most wealth measures). If Boomers are to have any non–Social Security income in retirement, it will likely be in the form of a 401(k) that does count as wealth.</p><p>And, of course, we get the completely meaningless national debt horror story:</p><blockquote><p>Still, no amount of tax reallocation could keep the government together and goodies flowing, so Boomers tolerated astounding debt expansion while chopping other parts of the budget. Gross national debt, <a href="http://www.tradingeconomics.com/united-states/government-debt-to-gdp" target="_blank">35 percent of GDP</a> when the Boomers came of age, is now <a href="https://fred.stlouisfed.org/series/GFDEGDQ188S" target="_blank">105 percent</a>, a peacetime record, expanding 3 percent annually, forever.</p></blockquote><p>Economics fans would note that interest on the debt (net of money refunded by the Federal Reserve Board) is around 0.8 percent of GDP, near a post-war low.</p><p>They would also point out that formal borrowing is just one way in which the government can create obligations for the future. The government also pays for things like innovation and creative work with patent and copyright monopolies. These monopolies effectively allow their owners to impose taxes on consumers. Due to these monopolies, we will pay $440 billion on prescription drugs this year for drugs that would likely sell for less than $80 billion in a free market. The difference of $360 billion is more than twice the net interest burden of the debt that Gibney wants us to worry about. And this is just patent protection for prescription drugs; the costs for the full range and patent and copyright monopolies throughout the economy would almost certainly be two or three times as large.</p><p>Of course, Gibney could also blame the commitment of these monopoly rents on Baby Boomers (after all, people elected by Baby Boomers were the ones who made these monopolies stronger and longer), but that might be a bit hard to sell. It would look pretty obvious that the story is one  of a massive upward redistribution to the rich—some of whom happen to be Baby Boomers—and that would undermine the whole effort at distraction in which Gibney and the <strong>Globe</strong> is engaged.</p><p> </p> Wed, 05 Apr 2017 12:02:00 -0700 Dean Baker, FAIR 1075046 at https://www.alternet.org Economy Economy baby boomers economy inequality the 1% labor Why the NY Times Is Chiefly Responsible for the Mass Ignorance About the U.S. Budget https://www.alternet.org/news-amp-politics/why-ny-times-chiefly-responsible-mass-ignorance-about-us-budget <!-- 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 sources give their readers huge numbers, without any context, how is the public supposed to understand the budget?</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/6757871357_f3f060a40c_z.jpg?itok=_iF1JiP0" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--><p>Paul Krugman <a href="https://www.nytimes.com/2017/03/17/opinion/conservative-fantasies-colliding-with-reality.html?action=click&amp;pgtype=Homepage&amp;clickSource=story-heading&amp;module=opinion-c-col-right-region&amp;region=opinion-c-col-right-region&amp;WT.nav=opinion-c-col-right-region&amp;_r=0">criticized</a> the Trump administration for its budget, which would cut or eliminate many programs that benefit low and moderate income people. In his piece, Krugman points out that the public is incredibly ignorant on the budget, with most people having virtually no idea of where most spending goes.</p><p>In particular, he referenced an analysis that found people on average believed we spend more than 30 percent of the budget on foreign aid. The actual figure is less than one percent.</p><p>This is the sort of item that inevitably leads people to deplore the ignorance of the masses. While ignorance is deplorable, instead of blaming the masses, we might more appropriately look at the elites.</p><p>The overwhelming majority of people are never going to look at a budget document. Insofar as they get any information on the budget, it is from reporters who tell them how much we spend in various areas of the budget. (They may get this information indirectly from their friends who read the newspaper or listen to news.)</p><p>When they hear about spending, they will invariably hear things like we spend $40 billion a year on foreign aid or <a href="https://www.hhs.gov/about/budget/budget-in-brief/acf/mandatory/index.html">$17.3 billion</a> on Temporary Assistance for Needy Families (TANF). Most people will think these figures are large sums, since they dwarf the sums that people see in their daily lives. In fact, the former is less than one percent of the $4.1 trillion that we will spend in 2017, while the latter is just over 0.4 percent of total spending.</p><p>The media could do a much better job of informing the public about spending (i.e. doing their job) if they made a point of putting these figures in context. As it is, giving people these really huge numbers without context is essentially telling them nothing. As an alternative, they could make a point of always referring to these numbers as a share of the budget and/or expressing them on a per person basis (e.g. the spending on TANF comes to a bit more than $50 per person per year from every person in the country).</p><p>I have harangued reporters on this point for decades. <i>No reporter</i> has ever tried to argue that any significant share of their audience had any idea of what these large budget numbers mean. Yet, the practice persists.</p><p>I thought I had scored a big victory in this effort a few years back when Margaret Sullivan, who was then public editor of the New York Times, wrote a strong <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">piece</a> completely agreeing with the need to express budget numbers in context. She got David Leonhardt, the NYT's Washington editor at the time, to agree as well.</p><p>This seemed to indicate that the paper would change its policy on budget reporting. Given the enormous importance of the NYT, as the nation's preeminent newspaper, such a change would have a substantial impact on reporting elsewhere. This was a huge deal, which I <a href="http://cepr.net/blogs/beat-the-press/numbers-in-context-big-congrats-to-the-new-york-times-and-margaret-sullivan">celebrated</a> at the time.</p><p>But no, the NYT did not change its practice. It continued to report really big numbers, without any context, which everyone knows are meaningless to the vast majority of even its well-educated readership.</p><p>Okay, so the masses are ignorant about the budget. I and other economist nerd types would like the public to have more knowledge about our area of expertise. But the child care worker who spent her day dealing with out of control three year olds, or the bus driver who was tied up in traffic for eight hours, is not going to come home and start looking at budget documents from the Congressional Budget Office.</p><p>At most, these people will spend a few minutes reading the article about the budget in their local paper or listening to a short story on the evening news. If these sources just give them really big numbers, without any context, how is the public supposed to know about the budget?</p><p>Look, I understand that we have racists who want to believe that all their tax dollars are going to good for nothing dark-skinned people and that many of them would believe this regardless of what facts they are presented with. However we have plenty of non-racists who also believe something like this because they hear that we spend really big numbers on TANF, food stamps, and other programs that help low-income people.</p><p>We can point fingers at the racists and denounce their racism and stupidity if that makes us feel good. But a more productive path would be to change what we should be able to change. We should be able to get reporters to do their jobs and report budget numbers in a way that mean something to their audience. What's the problem here?</p> Tue, 21 Mar 2017 09:13:00 -0700 Dean Baker, Center for Economic and Policy Research 1074002 at https://www.alternet.org News & Politics News & Politics federal budget New York Times Gets Federal Budget Story About Looming Trump-Ryan Clash Almost Completely Wrong https://www.alternet.org/economy/new-york-times-gets-federal-budget-story-about-looming-trump-ryan-clash-almost-completely <!-- 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">News that&#039;s fit to print: Trump and Ryan are not political philosophers.</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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/screen_shot_2017-02-28_at_8.49.48_am.png?itok=Lo67j-3H" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>Apparently the paper is confused on this issue since it headlined a front page <a href="https://www.nytimes.com/2017/02/27/us/politics/trump-budget-military.html?&amp;hp&amp;action=click&amp;pgtype=Homepage&amp;clickSource=story-heading&amp;module=a-lede-package-region&amp;region=top-news&amp;WT.nav=top-news">piece</a> on the budget, "Trump budget sets up clash over ideology within G.O.P." The article lays out this case in the fourth paragraph:</p><p>"He [Trump] also set up a battle for control of <a href="http://topics.nytimes.com/top/reference/timestopics/organizations/r/republican_party/index.html?inline=nyt-org">Republican Party</a> ideology with House Speaker <a href="http://topics.nytimes.com/top/reference/timestopics/people/r/paul_d_ryan/index.html?inline=nyt-per">Paul D. Ryan</a>, who for years has staked his policy-making reputation on the argument that taming the budget deficit without tax increases would require that Congress change, and cut, the programs that swallow the bulk of the government’s spending — Social Security, Medicare and <a class="meta-classifier" href="http://topics.nytimes.com/top/news/health/diseasesconditionsandhealthtopics/medicaid/index.html?inline=nyt-classifier" title="Recent and archival health news about Medicaid.">Medicaid</a>."</p><p>Most of us recognize Donald Trump and Paul Ryan as politicians who hold their jobs as a result of being able to gain the support of important interest groups. It really doesn't make much difference what their political philosophy is. Contrary to what the NYT might lead us to believe, this is not a battle of political philosophy, it is a battle over money.</p><p>On this score the NYT also gets matters seriously confused. First of all, it is wrong to describe Social Security, Medicare, and Medicaid as "the programs that swallow the bulk of government spending." Under the law, Social Security can only spend money raised through its designated taxes, either currently or in the past. For this reason, it is not a drain on the rest of the budget unless Congress changes the law.</p><p>Medicaid would also not rank among the three largest programs. The government is <a href="https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51129-2016outlook.pdf">projected to spend</a> $592 billion this year on the military compared to $401 billion on Medicaid.</p><p>The claim that Paul Ryan is concerned that these programs would "swallow the bulk of government spending" directly contradicts everything Paul Ryan has been explicitly advocating for years. Ryan has repeatedly put forward budgets that would<a href="https://www.cbo.gov/sites/default/files/112th-congress-2011-2012/reports/04-05-ryan_letter.pdf">reduce the size of the federal government to zero</a> outside of the military, Social Security, Medicare, and Medicaid. (See Table 2 in the Congressional Budget Office's analysis.) It is difficult to understand how a major newspaper can so completely misrepresent a strongly and repeatedly stated view of one of the country's most important political figures.</p><p>The piece is also somewhat misleading in telling readers:</p><p>"Social Security, health care and net interest now comprise nearly 60 percent of all federal spending, and that figure is expected to soar to 82 percent over the next 10 years."</p><p>One of the main causes of this "soaring" is the projection that interest rates will rise sharply over the next decade. There are three points worth noting on this issue. First CBO has been <a href="http://cepr.net/blogs/beat-the-press/budget-deficit-mania-and-the-congressional-budget-office">repeatedly wrong</a> over the last six years in projecting that interest rates will rise. While CBO may turn out right this time, it is certainly worth pointing out its past track record on this issue.</p><p>The second point is that the interest rate is a policy choice by the Federal Reserve Board. In effect, CBO is projecting that the Fed will decide to raise interest rates substantially over the next decade. Again, this may prove right, but it is important for readers to realize that the rise in interest payments would be due to a policy decision by an agency of the federal government (the Federal Reserve Board), not some inevitable economic outcome. The Fed would presumably raise interest rates to combat inflation, which has not been a problem for the last decade.</p><p>The third point is that, in contrast to much doomsaying in the media, interest payments as a share of GDP are near a historic low. After deducting the money rebated by the Federal Reserve Board ($90 billion a year), interest payments are now roughly 0.8 percent of GDP. This compares to more than 3.0 percent of GDP in the early 1990s. Of course even that debt burden did not prevent the 1990s from being a very prosperous decade.</p><p>It is also worth noting that whole focus on deficits and debt is misplaced if the issue is the future commitment of economic resources. Much government action imposes costs on the economy without taxation. An obvious example is when the government privatizes an asset like a road or the airwaves. The holders of these assets will effectively be imposing taxes on the public, but they won't be described that way.</p><p>The most important type of hidden tax in this vein is patent and copyright monopolies. These government-granted monopolies often raise the price of the protected items by several thousand percent above the free market price. The amount of money at stake is enormous. In the case of prescription drugs alone the gap between the monopoly prices and the free market price is close to $360 billion a year, almost 2 percent of GDP.</p><p>This is more than twice the size of the interest burden on the national debt. While those who want to cut programs like Social Security and Medicare might want to focus on government debt and deficits, anyone really concerned about the burdens the government was imposing for the future would be putting these monopolies front and center.</p><p>The NYT also misrepresents the nature of the conflict over the programs that might be cut as a generational issue:</p><p>"In effect, Mr. Trump appears determined to take sides in a generational struggle between older, sicker Americans who depend on the entitlement programs, and their younger, poorer counterparts whose livelihoods are shaped by the domestic programs likely to see steep cuts."</p><p>This generational description is wrong on many counts. First, since generations of families often live together (which is especially true with poorer families) cutting Social Security payments would <a href="http://globalpolicysolutions.org/report/overlooked-not-forgotten-social-security-lifts-millions-children-poverty/">directly hurt tens of millions</a> of low income children. Medicaid also disproportionately benefits both children and seniors. If this program is protected in the Trump budget then it will help both groups.</p><p>Also, as a practical matter, few Republicans advocate large cuts for current beneficiaries of programs like Social Security and Medicare. They generally advocate cuts that will hurt future generations, like the millennials. In effect, they are proposing cuts to these programs that will hit today's young, but not until they are older. It is difficult to see how this would be siding with the young in a generational battle. (It would be possible to reduce the costs of the health care programs by going after the excessive rents of pharmaceutical industry, the medical equipment industry and doctors, but few politicians, reporters, or economists seem to even want to talk about this possibility.)</p><p>Basically, Trump seems to have opted to protect universal programs with broad-based support while targeting programs that can be identified as helping poor people of all age groups. Trump's actions are easy to explain as a political tactic even if they don't fit any obvious ideology.</p><p> </p><p> </p> Tue, 28 Feb 2017 08:33:00 -0800 Dean Baker, Beat the Press 1073031 at https://www.alternet.org Economy Economy Election 2016 News & Politics donald trump paul ryan 2018 federal budget dean baker Center for Economic and Policy Research Will Donald Trump Turn His Presidency Into One Massive Insider Trading Scam? https://www.alternet.org/election-2016/will-donald-trump-turn-his-presidency-one-massive-insider-trading-scam <!-- 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 president has access to unlimited information. Expect him to use it to his financial benefit.</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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/shutterstock_411409843_0.jpg?itok=uWI_kNoF" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>Actually, I don’t know that Donald Trump will take advantage of the inside information he will have access to as president, but no one knows that he won’t. And the president has access to a massive amount of inside information.</p><p>Just for beginners, the president gets <a href="https://www.youtube.com/watch?v=RLySXTIBS3c" rel="nofollow" target="_blank">advance access</a> to the monthly jobs numbers and the quarterly GDP report. Suppose Mr. Trump finds out that the job growth in March is far weaker than the markets expected or that GDP growth for the first quarter of 2017 is surprisingly strong.</p><p>These reports would have a huge effect on the stock and bond markets. Trump could make a fortune by making highly leveraged bets just before the government reports are officially released. Or, if he doesn’t want to make the trades himself, he can pass the information along to Vincent Viola, his designee for Secretary of the Army, who became a billionaire running a high-frequency trading company. Apparently Mr. Viola plans to <a href="http://www.marketwatch.com/story/virtu-founder-wont-sell-stock-after-being-nominated-to-be-secretary-of-the-army-2016-12-19" rel="nofollow" target="_blank">maintain a stake</a> in his high-frequency trading company even after he enters the government.</p><p>This is just the beginning of ways in which Donald Trump and his top appointees can personally profit from their positions in government. We already have heard accounts of foreign diplomats changing their reservations so that they can stay at Donald Trump’s new hotel in Washington. And, it seems likely that foreign leaders will be more generous in considering licensing requests from Trump owned properties throughout the world.</p><p>And a good businessman is likely to know that little favors can go a long way. If Donald Trump were to support Turkey’s president, Recep Erdogan, in his crackdown on the country’s Kurdish population, it may lead to large payoff for Trump-owned properties in Turkey. The same would apply to the dozens of other countries in which Trump has a direct business stake.</p><p>Does the public have any reason to believe that Donald Trump will not conduct foreign and domestic policy so as to maximize the returns to the Donald Trump Organization? Has Trump given us any reason to believe that he will resist the temptation to profit from his position as president? The fact that he can’t keep himself from tweeting bizarre and absurd claims at the all hours of the night does not give confidence in his self-restraint.</p><p>More importantly, this is not a Trump-specific issue. Every president in the last fifty years has put their money in a blind trust. Ronald Reagan and both Bushes didn’t ask the public to trust them. They put their money in a blind trust. The same was true of Lyndon Johnson, Jimmy Carter, and Bill Clinton. Barack Obama put his family’s modest assets in Treasury bonds, which is also a fine option for avoiding conflicts of interest in the White House.</p><p>Divesting is also not something that would be difficult to do, even for Mr. Trump. As I outlined last month, Trump just needs to arrange for independent auditors to produce estimates of the value of his business enterprise. He can then buy an insurance policy based on these appraisals, under which the insurer would guarantee the appraised value.</p><p>The business would then be turned over to an independent manager who would look to sell it off in a way that maximized its value. This would avoid a need for dumping the various Trump businesses in a fire sale. They could continue to operate and earn profits until there was an opportune moment to sell.<br />At that point, the assets would be placed in a blind trust.</p><p>If the total value of the assets was less than the appraised value, Trump would be able to collect on the insurance policy for the difference. If it was more than the appraised value, the additional money would go to a charity of Trump’s choosing (not one under his family’s control). This process would remove Trump’s stake in the profitability and value of his assets from the day in which he takes out his insurance policy and turns over the operation of his various businesses.</p><p>Every president for the past fifty years has acted to assure the public that they would not personally profit from their actions as president. It’s not clear why Donald Trump thinks he should be exempt from this requirement. Does he think that losing the popular vote by almost a 3 million vote margin makes him special? Of course he has more assets and a business empire that he would have to surrender to follow past precedents, but being president involves some sacrifices. If he didn’t understand this fact, he shouldn’t take the job.</p><p> </p> Tue, 27 Dec 2016 07:15:00 -0800 Dean Baker, CEPR 1069519 at https://www.alternet.org Election 2016 Election 2016 corruption kleptocracy donald trump trump cabinet election 2016 The Republican Deficit Hawks Abandon Their Religion https://www.alternet.org/election-2016/deficit-hawks-abandon-their-religion <!-- 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 Trump&#039;s the one spending, Republicans in Congress are happy to sign the check.</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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/shutterstock_180341060_0.jpg?itok=SLFj3K6t" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>Remember all those times the Republicans in Congress shut down the government and threatened to default on the debt? The ostensible cause was the out-of-control deficit. Back in the day when President Obama was drafting the budget, these Republicans were arguing that the national debt threatened the well-being of our children and grandchildren. They claimed to view deficit reduction as a sacred cause.</p><p>Well, we’re about to see a religious conversion of world-historic size as the Republican Party, and its congressional leader Paul Ryan, convert from deficit hawks to big spenders. With Donald Trump in the White House, we’re going to discover that they think large deficits are just fine.</p><p>The basic story is straightforward. Trump has promised both an infrastructure program and large tax cuts which will primarily benefit the rich. On some days he has also promised big increases in military spending, but it’s not clear where this commitment stands.</p><p>In any case, he is talking about substantial increases in spending and a large cut in revenue. According to the <a href="http://www.taxpolicycenter.org/publications/analysis-donald-trumps-tax-plan" target="_blank">analysis of the Tax Policy Center</a> at the Brookings Institution and the Urban Institute, his tax plan will reduce revenue by more than $9 trillion (close to 4 percent of GDP) over the course of the next decade. This tax cut plan would effectively add close to $800 billion to the annual deficit when it first takes effect, with the amount increasing over time.</p><p>While the plan that gets submitted to Congress may look somewhat different than what Trump proposed in his campaign, there is no doubt that it will lead to a large increase in the size of the budget deficit. Under their former faith in balanced budgets, Speaker Ryan and his Republican caucus would be expected to strongly oppose this massive increase in budget deficits.</p><p>But there is an important difference between the origins of the Trump deficit and the deficits the Republicans fought under President Obama. While the cuts sought by the Republicans targeted programs that benefited large segments of the US population, according to the Tax Policy Center, more than half of Trump’s tax cuts will go to the richest 1 percent of the population. The richest 0.1 percent will get tax cuts that average almost $1.5 million annually.</p><p>The Trump tax cut is consistent with the fundamental principle of the Republican Party, and unfortunately for many Democrats, of putting as much money as possible in the pockets of the rich. In this context, a budget deficit of any size is no big deal. We saw that under President Reagan, the second President Bush and now under Donald Trump.</p><p>We can be sure that the Republicans will deny that their tax cuts will lead to large deficits, claiming that they will be offset by faster growth. In economics, this is called “lying.” There is a massive amount of research on this point. There is no reason to believe that the incentives created by lower tax rates will have a substantial impact on savings, investment or work.</p><p>When he was head of the Congressional Budget Office, Douglas Holtz-Eakin, a conservative economist who has advised many Republican candidates, <a href="https://www.cbo.gov/sites/default/files/12-01-10percenttaxcut.pdf" target="_blank">did a study of the possible effects of tax cuts on growth</a>. Analyzing a wide range of models he found that additional growth could at best reclaim a small fraction of the revenue lost to the tax cuts. In many of the models the tax cuts actually reduced growth, adding further to the deficit.</p><p>In addition to this sort of modeling exercise, we actually did this experiment, twice. In 1981, President Reagan cut income taxes sharply and the deficit soared. In 2001 the second President Bush sharply reduced taxes and the deficit soared.</p><p>In short, there is zero reason to think that additional growth from tax cuts will offset the lost revenue to any noticeably effect. We know this based on both careful economic research and two real-world experiments. This means when our Republican deficit hawks claim that their tax cuts for the rich won’t add to the deficit because of the additional growth they will produce, they know they are not telling the truth.</p><p>As I’ve written many times, the additional stimulus to the economy provided by Trump’s tax and spending plans may actually be a good thing, even if the composition of the spending and the targeting of the tax cuts is really bad. We need larger deficits to allow the economy to reach its potential and to get closer to full employment. This is what I’ve argued for years.</p><p>But the Republican deficit hawks have been saying the exact opposite. When it comes to giving tax dollars to the rich, they no longer care about deficits. It would be nice if the media called attention to the incredible hypocrisy of Speaker Ryan and the Republican caucus. Maybe they could take away a little time from covering Hillary Clinton’s emails.</p><p> </p><p> </p> Wed, 23 Nov 2016 08:45:00 -0800 Dean Baker, CEPR 1067720 at https://www.alternet.org Election 2016 Economy Election 2016 The Right Wing paul ryan republicans deficit spending economy donald trump election 2016 Trumponomics: It’s Not All Crazy https://www.alternet.org/economy/trumponomics-its-not-all-crazy <!-- 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">Irony: it might take a Republican president to give us a tight enough labor market for workers to get their share of the benefits of growth.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/shutterstock_364331684.jpg?itok=vgfCWtuI" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>It looks like we will have to get used to the idea of Donald Trump being president for the next four years. In his campaign he pushed many outlandish proposals, like banning Muslim immigrants and deporting 11 million immigrants without documentation. We will have to do whatever we can to block such flagrantly inhumane measures.</p><p>There are many other items on his campaign agenda and that of the Republican leadership that will have to be resisted, but at least one part of his agenda could actually offer real gains. Trump has proposed large infrastructure spending and also tax cuts that will hugely increase the deficit. Both offer real benefits, although with substantial risks.</p><p>The infrastructure story is straightforward. Roads and bridges in many parts of the country are badly in need of repair. This is both an economic waste, as people needlessly get caught in traffic, and a health hazard when bad roads increase the risk of accidents. Ideally, infrastructure spending would also go to repair schools and improve water systems so that we don’t have more Flints with people drinking lead in their water. It would be great if some of this funding also went to mass transit and clean energy to reduce greenhouse gas emissions, but that might be expecting too much from a Trump administration.</p><p>The infrastructure spending would also create jobs. Public construction has traditionally been a source of relatively good paying jobs for men without college degrees. In recent years, the construction workforce has been disproportionately Hispanic. Spending in this area benefits a segment of the labor market that badly needs help. Of course the benefits are considerably less if projects are privatized, as Trump has suggested, and this will have to be part of the battle.</p><p>The other useful part of Trump’s agenda is that he clearly does not care about budget deficits. His tax cuts could add more than $400 billion, more than 2.0 percent of GDP, to the annual deficit. These tax cuts are not a good use of money. They will overwhelmingly go to the rich who have been the main beneficiaries of economic growth over the last four decades.</p><p>In addition to not needing the money, if the point is to boost demand, giving tax breaks to the rich is the worst way to do it. If a poor or middle class person gets $1,000 from the government they are likely to spend most or all of it. But if we give another $1,000 or even $1,000,000 to Bill Gates it is unlikely to affect his consumption at all.</p><p>Even though the bulk of the Trump’s proposed tax cuts do go to the rich, there are still substantial cuts for the middle class, which will provide a real boost to consumption. This boost to consumption, along with the increased demand from his infrastructure spending, will mean a large increase in demand in the economy. The result will be more jobs and a reduction in unemployment.</p><p>The strengthening of the labor market will also leave workers better situated to get pay increases. The only time in the last four decades when workers at the middle and bottom of the wage distribution saw sustained gains in real wages was the tight labor market of the late 1990s.</p><p>The irony in this story is that it might take a Republican president to give us a tight enough labor market for workers to get their share of the benefits of growth. This is partly due to Democrats having come to idealize the virtues of balanced budgets. Many have wrongly concluded that the prosperity of the 1990s was due to the budget surpluses of the time, which were in fact the <a href="http://cepr.net/blogs/beat-the-press/clintons-surpluses-were-due-to-the-stock-bubble" target="_blank">outcome</a> rather than the cause of strong growth. In her campaign, Clinton repeatedly promised that her spending plans would not increase the deficit.</p><p>However the bigger obstacle to larger deficits under a Democratic president is the Republican Congress. The Republicans routinely screamed bloody murder over any effort by President Obama to stimulate the economy with larger deficits. Several times they have balked at raising the debt ceiling, arguing that this routine maintenance measure was somehow a threat to our children’s well-being. In fact, the burden posed by servicing the debt, at 0.8 percent of GDP, is near a post-war low.</p><p>But Congressional Republicans will no longer care about deficits with President Trump in the White House. This means that he will be able to run deficits large enough to get the economy to full employment and quite possibly beyond.</p><p>We may once again see issues with inflation and a need for higher interest rates to slow the economy. That will have some negative effects, but at least it will put an end to the long period of high unemployment and secular stagnation. This will be a good thing; it’s just unfortunate that we needed a Trump administration to get there.</p> Mon, 14 Nov 2016 09:03:00 -0800 Dean Baker, CEPR 1067121 at https://www.alternet.org Economy Economy trump economics Contrary to What AP Tells You, Social Security Is NOT a Main Driver of the Country's Long-term Budget Problem https://www.alternet.org/labor/contrary-what-ap-tells-you-social-security-not-main-driver-countrys-long-term-budget-problem <!-- 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 Associated Press is misleading the American people by hyping a Social Security &quot;crisis.&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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/6280517815_e5d397bfd5_z.jpg?itok=oy3PH08z" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>The NYT ran a short <a href="http://www.nytimes.com/aponline/2016/09/27/business/ap-us-campaign-2016-why-it-matters-social-security.html?src=busln">AP piece</a> on Social Security and "why it matters." The piece wrongly told readers that Social Security is "a main driver of the government's long-term budget problems." This is not true. Under the law, Social Security can only spend money that is in its trust fund. If the trust fund is depleted then full benefits cannot be paid. The law would have to be changed to allow Social Security to spend money other than the funds designated for the program and in that way contribute to the deficit.</p><p>The piece also plays the "really big number" game, telling readers:</p><blockquote><p>"the program faces huge shortfalls that get bigger and bigger each year.In 2034, the program faces a $500 billion shortfall, according to the Social Security Administration. In just five years, the shortfalls add up to more than $3 trillion.<br /><br />"Over the next 75 years, the shortfalls add up to a staggering $139 trillion. But why worry? When that number is adjusted for inflation, it comes to only $40 trillion in 2016 dollars — a little more than twice the <a href="http://topics.nytimes.com/topics/reference/timestopics/subjects/n/national_debt_us/index.html?inline=nyt-classifier" title="More articles about the national debt.">national debt</a>."</p></blockquote><p>Since this is talking about shortfalls projected to be incurred over a long period of time, it would be helpful to express the shortfall relative to the economy over this period of time, not debt at a point in time. This is not hard to do, since there is a <a href="https://www.ssa.gov/OACT/TR/2016/VI_G2_OASDHI_GDP.html#200732">table</a> right in the Social Security trustees report that reports the projected shortfall as being equal to 0.95 percent of GDP over the 75-year forecasting horizon. By comparison, the costs of the war in Iraq and Afghanistan came to around 1.6 percent of GDP at their peaks in the last decade.</p><p>The piece also gets the reason for the projected shortfall wrong. It tells readers:</p><blockquote><p>"In short, because Americans aren't having as many babies as they used to. That leaves relatively fewer workers to pay into the system. Immigration has helped Social Security's finances, but not enough to fix the long-term problems.</p><p>"In 1960, there were 5.1 workers for each person getting benefits. Today, there are about 2.8 workers for each beneficiary. That ratio will drop to 2.1 workers by 2040."</p></blockquote><p>Actually, the drop in the birth rate and the declining ratio of workers to beneficiaries had long been predicted. The reason that the program's finances look worse than when the Greenspan commission put in place the last major changes in 1983 is the slowdown in wage growth and the upward redistribution of wage income so that a larger share of wage income now goes untaxed.</p><p>In 1983, only 10 percent of wage income was above the payroll tax cap. Today it is close to 18 percent. This upward redistribution explains <a href="http://cepr.net/blogs/cepr-blog/the-impact-of-the-upward-redistribution-of-wage-income-on-social-security-solvency">more than 40 percent </a>of projected shortfall over the next 75 years.</p><p>It is also worth noting that the loss in wage income for most workers to upward redistribution swamps the size of any tax increases that could be needed to maintain full funding for the program. While AP wants to get people very worried over possible tax increases in future years, it would rather they ignore the policies (e.g. trade, Fed policy, Wall Street policy, patent policy) that have taken money out of the pockets of ordinary workers and put it in the hands of the rich.</p> Tue, 27 Sep 2016 09:59:00 -0700 Dean Baker, CEPR 1064425 at https://www.alternet.org Labor Labor social security money retirement The Economists Who Didn't See the Big Crash of 2008 Coming Still Don't Understand What Happened or How to Fix It https://www.alternet.org/economy/lehman-brothers-anniversary-0 <!-- 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">Our leading economists got the recovery wrong. </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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/6169880529_daf9fe18df_z.jpg?itok=UkE5MHV_" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>Last week marked the eighth anniversary of the collapse of Lehman Brothers, the huge Wall Street investment bank. This bankruptcy sent financial markets into a panic with the remaining investment banks, like Goldman Sachs and Morgan Stanley, set to soon topple. The largest commercial banks, like Citigroup and Bank of America, were not far behind on the death watch.</p><p>The cascade of collapses was halted when the Fed and Treasury went into full-scale bailout mode. They lent trillions of dollars to failing banks at below market interest rates. They also promised the markets that there would be "no more Lehmans" to use former Treasury Secretary Timothy Geithner's term.</p><p>This promise was incredibly valuable in a time of crisis. It meant that investors could lend freely to Goldman and Citigroup without fear that their loans would not be repaid -- they had the Treasury and the Fed standing behind them.</p><p>The public has every right to be furious about this set of events eight years ago, as well what has happened subsequently. First, everything about the crisis caught the country's leading economists by surprise. Somehow, the country's leading economists both could not see an $8 trillion housing bubble, nor could they understand how its collapse would seriously damage the economy. This bubble was clearly driving the economy prior to the crash, it is difficult to envision what these economists thought would replace the demand lost when the bubble burst.</p><p>The immediate fallout from the collapse of Lehman also caught the Fed and Treasury by surprise. Having made the decision to allow the market to work its magic on a major bank, they apparently did not anticipate the consequences. The Fed and the Treasury later cooked up the excuse that they lacked the legal authority to save Lehman, as though someone would have brought a lawsuit to stop them if they had tried.</p><p>Having failed to recognize both the risks of the bubble and the consequences of the Lehman collapse, the Fed and Treasury then pulled out all the stops to keep the big Wall Street banks in business. They said this was necessary to prevent another Great Depression.</p><p>It is difficult to see how letting the market work on Wall Street would have condemned us to a decade of double digit unemployment. Would fiscal and monetary stimulus no longer work?</p><p>To support the second Great Depression myth, a <a href="https://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf" target="_blank">paper</a> from Alan Blinder and Mark Zandi, two of the country's most prominent economists, tried to show how we would have had a decade of double-digit unemployment without the Wall Street bailout.</p><p>In fact, the paper shows nothing of the sort. It shows that if we never took any steps to boost the economy we would have faced a decade of double-digit unemployment. That distinction may be too subtle for people who write on economics for a living, but most of the public understands the difference.</p><p>The record of failure continued into the recovery. Most economists believed that we would see a quick bounce back from the crash, even without any exceptional amounts of government stimulus. This was the excuse for the austerity that was imposed across the world in 2011. As a result, we have seen an incredibly slow recovery in the United States, and an even slower one in Europe.</p><p>Workers in the United States are just now getting back to their pre-recession levels of income. According to the Congressional Budget Office, <a href="https://www.cbo.gov/about/products/budget_economic_data#6" target="_blank">potential GDP</a> is now 10 percent less ($1.9 trillion) than the amount projected for 2016 before the downturn. This is a recurring loss of GDP that amounts to almost $6,000 a year for every person in the country. This is an incredible burden that the austerity crew has imposed on our children and grandchildren.</p><p>This brings us to the story of men who don't work. There are many economists who argue that the economy is now fully employed and it is time for Federal Reserve Board to raise interest rates to slow the economy and the rate of job growth.</p><p>While the unemployment rate is relatively low, those of us who are opposed to Fed rate hikes point out that millions of prime-age workers (ages 25-54) have dropped out of the labor force and are not counted as unemployed. These people likely would be working if the economy created the jobs.</p><p>But the rate hike crew decided the <a href="https://www.washingtonpost.com/opinions/the-economy-is-on-the-rise-heres-how-to-keep-it-that-way/2016/09/10/d813e108-76b2-11e6-b786-19d0cb1ed06c_story.html?utm_term=.e8c3f322d85d" target="_blank">problem is</a> that millions of men are no longer suited for the labor market. One economist even <a href="https://www.bloomberg.com/view/articles/2016-09-12/debating-government-s-role-in-boosting-growth" target="_blank">argued</a> that these men have opted for internet porn and video games over work.</p><p>It's touching to see economists talking about the problems of men without jobs. However economists who pay attention to economic data know that there has been a sharp drop in employment rates among prime-age women also. In fact, the <a href="http://cepr.net/blogs/beat-the-press/men-who-don-t-work-when-did-economists-stop-being-wrong-about-the-economy" target="_blank">drop in employment among less-educated prime-age women</a> has actually been larger than the drop among less-educated prime-age men.</p><p>In other words, our leading economists had no clue about what was going on in the economy at the time of the crash, they got the recovery completely wrong, and they still don't seem to have a clue today. But they are good at making up stories about the lack of marketable skills of less-educated workers.</p><p>Copyright, <a href="http://www.truth-out.org/opinion/item/37654-the-anniversary-of-lehman-and-men-who-don-t-work">Truthout.org</a>. Reprinted with permission.</p> Tue, 20 Sep 2016 07:44:00 -0700 Dean Baker, Truthout 1064033 at https://www.alternet.org Economy Economy Labor lehman brothers 2008 financial crisis economy labor Andrew Ross Sorkin Doesn't Like Glass-Steagall, So Is He Making Things Up to Push His Case? https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/screen_shot_2016-07-28_at_11.27.42_am.png?itok=JKU2EAas" /></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 https://www.alternet.org Labor Labor economy labor The Secret to the Incredible Wealth of Bill Gates https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/shutterstock_155863772-edited.jpg?itok=b9-2VAEd" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/shutterstock_103035632.jpg?itok=e0VNqFJH" /></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 https://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? https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/screen_shot_2016-05-05_at_3.38.25_pm.png?itok=MrP27xxs" /></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="https://www.alternet.org/sites/default/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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/shutterstock_cocktail_party.jpg?itok=SOde9cOl" /></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 https://www.alternet.org Economy Economy Election 2016 thomas friedman dean baker Washington centists President Obama Pushes a Weak Case on TPP https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/screen_shot_2016-05-03_at_10.55.58_am.png?itok=1hUHBmMI" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/screen_shot_2016-04-26_at_12.41.27_pm.png?itok=rFxFDQTV" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/screen_shot_2016-04-14_at_1.30.07_pm.png?itok=GLZZ0kTZ" /></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 https://www.alternet.org Labor Labor Media verizon labor work workers DC Press Corps Spins Itself Silly Over Sanders’ Specifics https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/maxresdefault_5.jpg?itok=GokLMyFr" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/screen_shot_2016-02-12_at_9.14.39_am.png?itok=z4Hj3JdW" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/shutterstock_342387872.jpg?itok=UzF_48hp" /></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="https://www.alternet.org/sites/default/files/styles/large/public/story_images/laborshareofcorporateincome-768x461.png?itok=C67frORp" /><!-- 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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/sanders_5.jpg?itok=44IuX2tU" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/shutterstock_354206384.jpg?itok=oOVFtl6q" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/shutterstock_locked_door.jpg?itok=8LrcVGnm" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/shutterstock_233165731-edited.jpg?itok=M_fYVia5" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/jeb_bush_0.jpg?itok=-6PHX5ft" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/shutterstock_cut_taxes.jpg?itok=TPHdZmUJ" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/sensanderscitunited_590.jpg?itok=RNXEX3ko" /></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 https://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 https://www.alternet.org/labor/how-guaranteed-paid-sick-days-could-boost-us-job-growth <!-- iCopyright Horizontal Tag --> <div class="icopyright-article-tools-horizontal icopyright-article-tools-right"> <script type="text/javascript"> var icx_publication_id = 18566; var icx_content_id = '1031085'; </script> <script type="text/javascript" src="http://license.icopyright.net/rights/js/horz-toolbar.js"></script> <noscript> <a class="icopyright-article-tools-noscript" href="http://license.icopyright.net/3.18566?icx_id=1031085" target="_blank" title="Main menu of all reuse options"> <img height="25" width="27" border="0" align="bottom" alt="[Reuse options]" src="http://license.icopyright.net/images/icopy-w.png"/> Click here for reuse options! </a> </noscript> </div> <div style="clear:both;"></div><!-- iCopyright Tag --> <!-- 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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/franklinbandage.jpg?itok=zZh6WyHl" /></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> <!-- iCopyright Interactive Copyright Notice --> <script type="text/javascript"> var icx_publication_id = 18566; var icx_copyright_notice = '2015 Alternet'; var icx_content_id = '1031085'; </script> <script type="text/javascript" src="http://license.icopyright.net/rights/js/copyright-notice.js"></script> <noscript> <a style="color: #336699; font-family: Arial, Helvetica, sans-serif; font-size: 12px;" href="http://license.icopyright.net/3.18566?icx_id=1031085" target="_blank" title="Main menu of all reuse options"> <img height="25" width="27" border="0" align="bottom" alt="[Reuse options]" src="http://http://license.icopyright.net/images/icopy-w.png"/>Click here for reuse options!</a> </noscript> <!-- iCopyright Interactive Copyright Notice --> Thu, 29 Jan 2015 10:36:00 -0800 Dean Baker, AlterNet 1031085 at https://www.alternet.org Labor Labor employment The Biggest Economic Myths, Debunked https://www.alternet.org/biggest-economic-myths-debunked <!-- iCopyright Horizontal Tag --> <div class="icopyright-article-tools-horizontal icopyright-article-tools-right"> <script type="text/javascript"> var icx_publication_id = 18566; var icx_content_id = '1028775'; </script> <script type="text/javascript" src="http://license.icopyright.net/rights/js/horz-toolbar.js"></script> <noscript> <a class="icopyright-article-tools-noscript" href="http://license.icopyright.net/3.18566?icx_id=1028775" target="_blank" title="Main menu of all reuse options"> <img height="25" width="27" border="0" align="bottom" alt="[Reuse options]" src="http://license.icopyright.net/images/icopy-w.png"/> Click here for reuse options! </a> </noscript> </div> <div style="clear:both;"></div><!-- iCopyright Tag --> <!-- 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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/shutterstock_192890837_0.jpg?itok=ChhVo0_e" /></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> <!-- iCopyright Interactive Copyright Notice --> <script type="text/javascript"> var icx_publication_id = 18566; var icx_copyright_notice = '2014 Alternet'; var icx_content_id = '1028775'; </script> <script type="text/javascript" src="http://license.icopyright.net/rights/js/copyright-notice.js"></script> <noscript> <a style="color: #336699; font-family: Arial, Helvetica, sans-serif; font-size: 12px;" href="http://license.icopyright.net/3.18566?icx_id=1028775" target="_blank" title="Main menu of all reuse options"> <img height="25" width="27" border="0" align="bottom" alt="[Reuse options]" src="http://http://license.icopyright.net/images/icopy-w.png"/>Click here for reuse options!</a> </noscript> <!-- iCopyright Interactive Copyright Notice --> Tue, 16 Dec 2014 07:17:00 -0800 Dean Baker, AlterNet 1028775 at https://www.alternet.org News & Politics economy Why the Love Affair Between Government and Big Finance Must End https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/brokenheart.jpg?itok=zgIc9WCf" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/airbnb.png?itok=JHFDbxo_" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/5bccbb77bf73567ac99c49e08342b304eb13e509_0.jpg?itok=TNlacfy8" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/cowboyt.jpg?itok=IHWPWLEG" /></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 https://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! https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/money_0.jpg?itok=j3Bq6nKu" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/blind_business_man_0.jpg?itok=2FmGtezS" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/toilet.jpg?itok=NjqbZW0Z" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/robot_and_human.jpg?itok=AHTJSSwb" /></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 https://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 https://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="https://www.alternet.org/sites/default/files/styles/story_image/public/story_images/shutterstock_74521771.jpg?itok=kfUcsOUQ" /></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 https://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