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Catherine Rampell Is Right: Medicare Is a Steal, but for Whom?

By: Dean Baker Thursday April 10, 2014 9:08 pm

It’s not the beneficiaries who are doing the stealing

Catherine Rampell used her column today to defend an earlier column complaining that baby boomers are taking from young people through Social Security and Medicare. She acknowledges that most baby boomers will not come out ahead on Social Security (actually they come out someone behind in the source she cites) but then tells readers:

Medicare, on the other hand, is pretty much a steal no matter when you turned 65.

This is true, but it’s hard to argue that it is the beneficiaries who are doing the stealing. We pay more than twice as much per person on average for our health care as people in other wealthy countries. We have little or nothing to show for this extra spending in terms of outcomes. For example, every other wealthy country has longer life expectancies than we do. It therefore is hard to argue that seniors are the beneficiaries of the exorbitant spending on Medicare.

On the other hand, we know who does benefit. The Centers for Medicare and Medicaid Services released data this week showing that small number of doctors account for a grossly disproportionate share of Medicare’s payments to doctors, with many collecting more than $1 million a year from the system. The top earner, a big campaign contributor, pocketed more than $20 million in a single year.

Doctors in the United States earn more than twice as much on average as their counterparts in other wealthy countries. We also pay more than twice as much for our prescription drugs and for medical equipment. If one were to look for people stealing from Medicare, these and other health care providers would be the obvious candidates.

It is also worth noting that the well-being of people of Rampell’s generation (her explicit concern in the piece) will depend far more on stopping and reversing the pattern of upward redistribution of income that we have been seeing since 1980. If this is not reversed then millennials will see little of the 50 percent growth in real compensation over the next three decades that is projected by the Social Security trustees. if millennials are able to secure wage gains that track the economies productivity growth then their gains in compensation will be an order of magnitude larger than any possible tax increases associated with Social Security and Medicare.

Dean Baker is co-director of the Center for Economy and Policy Research. He also writes a regular blog, Beat the Press, where this post originally appeared.

NYT Does Hilarious April Fools Joke on Budget Reporting

By: Dean Baker Wednesday April 2, 2014 1:39 am
The facade of the New York Times building

The joke’s on your readers, Grey Lady …

The NYT took advantage of April Fools Day to do budget reporting that provided no information to almost all of its readers. An article on the budget introduced by Paul Ryan, the Republican head of the House Budget Committee, told readers how much the budget proposes to cut over the next decade in dollar terms. Since virtually no one has any idea of how much the government will spend over the next decade, this information is meaningless to almost everyone who reads the New York Times.

The NYT piece told readers:

Mr. Ryan, the House Budget Committee chairman and a possible White House contender in 2016, laid out a budget plan that cuts $5 trillion in spending over the next decade.

Later the piece added:

In his plan, military spending through 2024 would actually rise by $483 billion over the spending caps established in the 2011 Budget Control Act ’consistent with America’s military goals and strategies,’ while nondefense spending at Congress’s annual discretion would be cut by $791 billion below those strict limits.

As with past budget proposals, Mr. Ryan seeks to eliminate the Affordable Care Act’s Medicaid expansion, a $792 billion retrenchment, then turn the health care program for the poor into block grants to the states — saving an additional $732 billion over the decade. He would turn food stamps into a block grant program and cap spending, starting in 2020, cutting that program by $125 billion in five years.

Of course only a tiny fraction of NYT readers have any idea what these numbers could imply for their pocket book, in terms of potential tax savings, for the total budget, or for the programs affected.

Had this been written as a real news story, these sections might have read:

“Mr. Ryan, the House Budget Committee chairman and a possible White House contender in 2016, laid out a budget plan that cuts $5 trillion in spending over the next decade. This is 12.3 percent of projected spending or roughly 2.7 percent of projected GDP over this period.

“In his plan, military spending through 2024 would actually rise by $483 billion over the spending caps established in the 2011 Budget Control Act “consistent with America’s military goals and strategies,” while nondefense spending at Congress’s annual discretion would be cut by $791 billion below those strict limits. The increase in defense spending is equal to 7.4 percent of projected spending, while the cut in nondefense spending is 13.0 percent of spending in this category.

“As with past budget proposals, Mr. Ryan seeks to eliminate the Affordable Care Act’s Medicaid expansion, a $792 billion retrenchment, then turn the health care program for the poor into block grants to the states — saving an additional $732 billion over the decade.This cuts total federal spending on non-Medicare health programs by 26.0 percent over the 10-year budget period. Since the cuts are phased in, the cuts in 2024 amount to 49.6 percent of projected spending on non-Medicare health programs in that year.

“The cuts to the food stamp amount to 16.4 percent of projected spending on the program. Since Ryan’s proposed cuts are first applied to years after 2019 they amount to 33.3 percent of projected spending on food stamps in these years, reducing total spending by 0.5 percent in these years.”

Dean Baker is co-director of the Center for Economy and Policy Research. He also writes a regular blog, Beat the Press, where this post originally appeared.

Robert Samuelson’s Arithmetic Challenged Economics

By: Dean Baker Sunday February 23, 2014 7:13 pm

Yes, it’s Monday and Robert Samuelson is badly confused about economics again. Today he complains about the White House’s “fairy-tale economics.”

A stone dragon statue

Under Samuelson’s fantasy of Fairy Tale Economics, are dragons job creators?

Robert Samuelson is upset because the Obama administration has been arguing that it is possible to raise the minimum wage without any job loss. He apparently feels that he can now dismiss this claim as fairy-tale economics because the Congressional Budget Office (CBO) issued a study that put its best guess of the job loss from the administration’s proposal at 500,000.

It’s worth noting that in its report CBO did not dismiss the possibility of zero job loss as fairy-tale economics. CBO noted the economic research on the topic and commented that the plausible range of impact would include near zero. CBO did not do original research, rather it chose to pick a number for its estimate that was a midpoint of the findings of recent research. (See my colleague John Schmitt’s post for a longer discussion.) So the dismissal of a zero estimate of job loss as fairy-tale economics is Samuelson’s invention, not a conclusion based on CBO’s analysis.

It is also worth doing a little arithmetic to assess the 500,000 figure. As Samuelson points out, CBO projects that the minimum wage hike would affect 16 million people directly and another 8 million through spillover effects. This means that the lost jobs will be roughly equal to 3 percent of the workers directly affected and 2 percent of the total number of workers who see wage hikes.

For the most part, the reduction in employment of 500,000 will not correspond to workers being laid off. More likely it means that workers will not be replaced when they leave and that firms will be slower to hire when they see an increase in demand.

This is important to keep in mind, because we are not talking about 500,000 workers being permanently unemployed. Minimum wage jobs tend to be high turnover jobs. As a practical matter, a loss of 500,000 jobs means that workers will spend more time looking for jobs when they first enter the labor force or change jobs. This means that they can expect to spend roughly 2-3 percent less time working, but when they do work they will get close to 19 percent more per hour. Note this is not “fairy-tale economics,” this is Robert Samuelson’s economics if he bothered to think through what he was saying.

There are other fun items in Robert Samuelson’s piece. He is still unhappy about the Affordable Care Act. He tells readers;

In another report, the CBO estimated that the health insurance subsidies in the Affordable Care Act (Obamacare) would discourage people from working, resulting in a loss of the equivalent of 2.5 million full-time workers by 2024.

Let’s try a little logic here. CBO says that being able to get access to health care insurance outside of the workplace will lead people to reduce the number of hours they work by the equivalent of 2.5 million full-time jobs. This means that near retirees, people in bad health, and parents with young children will opt to work less. Samuelson apparently thinks this is really bad for some reason — maybe he can explain why in a later column.

But from the standpoint of employment, it’s hard to see why this is not good news. In effect, this is saying that 2.5 million people who would rather not be working will be opting out of the labor force. This means that 2.5 million jobs will be opening up for people who do want to work. And the problem is?

Finally, Samuelson is upset that President Obama has not approved the XL pipeline, which he describes as a “job-creation project.” Here too a bit of arithmetic is in order. According to the standard estimates, the XL pipeline would increase employment by about 0.007 percent for two years. The jobs added would be the equivalent of two days worth of normal job creation. That would not seem to fit the bill of a “job-creation project.”

However the other side of the story is that it will facilitate the extraction of oil that is very dirty from the standpoint of global warming. In other words, it will contribute in a big way to global warming and the destruction of the planet.

This is especially ironic coming from Samuelson. One of the main themes of his columns is that the old are stealing from the young with their Social Security and Medicare. However Samuelson apparently sees nothing wrong with handing our kids a wrecked planet so that we can increase employment by 0.007 percent for two years.

Hey, this is the Washington Post and Robert Samuelson, you were expecting an argument that made sense?

Dean Baker is co-director of the Center for Economy and Policy Research. He also writes a regular blog, Beat the Press, where this post originally appeared.

WaPo Tells Liberals That They Have No Political Power: The Case of Social Security

By: Dean Baker Saturday February 22, 2014 8:39 am

Washington Post

“Liberals didn’t kill Obama’s Social Security cuts: Republicans did.”

The WaPo gets infuriated at the thought that anyone who doesn’t have lots of money could affect political outcomes in the United States. Hence it was quick to run a piece with the headline:

“Liberals didn’t kill Obama’s Social Security cuts: Republicans did.”

The reference is to President Obama’s decision to remove the proposal to reduce the annual cost of living adjustment to Social Security benefits. The proposal would have reduced benefits by roughly 0.3 percentage points annually against current law. This cut is cumulative so that after ten years it implies a cut of roughly 3.0 percent, after twenty years, 6.0 percent, and for someone who lives to collect benefits for thirty years the cut would be 9.0 percent. (Obama’s proposal includes some offsets, so the actual cuts would be somewhat less, especially for the oldest elderly.)

The point of the piece is that Obama would have gone with this proposal, and probably still would today, if the Republicans were prepared to make some concessions on revenue. This is the logic of saying that the Republicans killed the plan, not liberals.

However this is just half the picture. The Republicans did not force President Obama to take the proposal out of his budget, liberals did. Because of a massive outpouring of opposition from across the country, Democratic members of Congress, who have to run for re-election, urged President Obama not to include the proposal in his 2015 budget.

Otherwise, this might have been a case where you just leave the Christmas lights out all year. Why bother to take them down? It’s of course painful at the Post to acknowledge that progressive groups without big bucks can make a difference in national politics, but it does happen from time to time.

The piece also tells readers:

many of his advisers believed that chained CPI [the cut to the annual Social Security cost-of-living adjustment], with protections for poor seniors, was a good policy that used a more accurate measure of inflation.

Actually, the Post doesn’t know what President Obama’s advisers believed. The Post knows what they said. President Obama’s advisers hold their positions because they are thought to be good at spinning reporters. Part of that spin means telling reporters that they really “believe” that President Obama’s positions are the best possible policy.

It is possible that President Obama’s advisers really do believe that seniors living on $1,300 a month (the average Social Security benefit, which is more than 90 percent of the income for almost 40 percent of retirees) have too much money, but they would say this to Washington Post reporters regardless of what they actually believed. That is a job requirement.

If a Post reporter claims that they know an Obama official well enough to ascertain their true beliefs then they are probably too close to that person to be able to report on them objectively

Dean Baker is co-director of the Center for Economy and Policy Research. He also writes a regular blog, Beat the Press, where this post originally appeared.

Charles Lane is Wrong on NAFTA and the Trans-Pacific Partnership

By: Dean Baker Tuesday February 4, 2014 5:20 am

Charles Lane is wrong, as usual, in arguing that the Trans-Pacific Partnership (TPP), like its predecessor NAFTA, is good for U.S. workers. However, the piece is useful in providing an opportunity to explain some basic economics.

Protest sign: Stop TPP

The Washington Post mobilizes its best(?) in support of bad trade deals.

Most of the piece is dedicated to saying that NAFTA, which to some extent is a model for the TPP, was really good for the country. Lane starts by disputing that NAFTA contributed to the $181 billion trade deficit that the United States ran with Canada and Mexico. He tells readers:

But $100.7 billion of this deficit is because of oil imports, according to U.S. government trade statistics. NAFTA has nothing to do with this; Canadian and Mexican oil imports always flowed freely.

Nope, that’s not how it is supposed to work. The United States is a net importer of oil and derivative products. That does not mean that the United States is supposed to run a trade deficit. According to good old econ 101, a deficit on oil trade is supposed to mean that the dollar falls, which then leads us to increase exports and reduce imports of other items. This adjustment would not take place over night, but we would expect it to take place over a long enough period of time. So pointing to oil imports and saying that we really don’t have a trade deficit with these countries really is silly. (This doesn’t mean the deficit is due to NAFTA, but it certainly doesn’t preclude the possibility.)

Then Lane gives us a head scratcher. He tells us this trade figure doesn’t include, “almost $90 billion worth of goods that entered this country from elsewhere and then got re-exported to Mexico or Canada.” He then points out that re-exports create jobs in the U.S. in shipping and other areas. Incredibly, Lane then adds in the full $90 billion value of the re-exports, telling readers:

Eliminating oil and including re-exports produces a U.S.-NAFTA surplus of roughly $7 billion in the goods trade.

Wow, so we get just as many jobs from having one million cars pass through ports in Oakland and Los Angeles on their way to Mexico and Canada as we do from building one million cars and exporting them to Mexico and Canada? Apparently we do on the Post’s opinion page. Remember these are the folks, who in NAFTA boosterism, claimed Mexico’s economy quadrupled from 1987 to 2007. (The actual increase was 83 percent.)

Getting beyond Lane’s silliness, there are two ways in which trade has hurt most workers in the United States. First the overall trade deficit has cost the country millions of jobs. This is as basic as it gets. If we have a trade deficit, this is demand that is going overseas rather than creating jobs in the United States. If we spend $100 billion in Europe, that $100 billion is not creating jobs in the United States.

We can in principle offset a trade deficit with increased domestic demand, but that is not easy to do when the deficit is large, as is the case today. With a $500 billion annual trade deficit (3 percent of GDP) we need some mix of large budget deficits, booming investment, or surging consumption, to offset the demand lose due to the trade deficit. We were able to offset this loss of demand with the stock bubble in the late 1990′s and the housing bubble in the last decade, but otherwise it does not seem plausible. (BTW, the impact of the trade deficit in reducing demand swamps any plausible effects of reduced consumption due to upward redistribution of income. It is bizarre that economists are finally willing to talk about the latter, but still unwilling to think about the former.)

Okay, so a large trade deficit means less demand and fewer jobs. If we put the deficit at 3-4 percent of GDP (the deficit would increase if we were at potential GDP) then we would be talking about 4.2-5.6 million direct jobs. Assuming a multiplier of 1.5, this would get us 6.3-8.4 million jobs. In other words, this is a big deal.

David Brooks’ Primitive Defense of the Rich

By: Dean Baker Friday January 17, 2014 5:14 am
David Brooks lectures at a podium

David Brooks making stuff up to defend the rich, again.

David Brooks is sweating hard trying to defend the one percent against the rest of the country and reality. His column today desperately warns readers:

Some on the left have always tried to introduce a more class-conscious style of politics. These efforts never pan out. America has always done better, liberals have always done better, when we are all focused on opportunity and mobility, not inequality, on individual and family aspiration, not class-consciousness.

Funny, I thought Social Security, the Fair Labor Standards Act (i.e. the 40-hour workweek), the National Labor Relations Board, and other products of the New Deal were pretty big accomplishments. Much of this was done quite explicitly with a sense of class consciousness. These were all measures that were backed by mass movements that sought to ensure that working people got their share of the economic pie. Good thing we have David Brooks to tell us the opposite.

This is far from the only place where Brooks seems to be at odds with reality. Brooks condemns focusing on inequality because it leads to ineffective policies like raising the minimum wage. He then cites a study by Joseph J. Sabia and Richard V. Burkhauser telling readers:

Consistent with some other studies, they find no evidence that such raises had any effect on the poverty rates.

That’s because raises in the minimum wage are not targeted at the right people.

Actually the Sabia and Burkhauser study goes against the overwhelming majority of other studies on the topic as summarized in this analysis by University of Massachusetts professor Arin Dube.

Brooks also warns us:

Third, the income inequality frame contributes to our tendency to simplify complex cultural, social, behavioral and economic problems into strictly economic problems [emphasis in original].

There is a very strong correlation between single motherhood and low social mobility. There is a very strong correlation between high school dropout rates and low mobility. There is a strong correlation between the fraying of social fabric and low economic mobility. There is a strong correlation between de-industrialization and low social mobility.

Actually the problem of single motherhood is a problem of the United States providing inadequate support for child raising. Many other wealthy countries have higher shares of single parent families without the same sort of negative outcome for the kids. Rather than fixing our system of social supports such as paid family leave and sick days and childcare, Brooks wants big government to tell people who they should live with and love.

It’s not clear what social fabric Brooks thinks is fraying. The percentage of children in single-parent families has actually largely stabilized in the last three decades. The percentage of teen mothers is way down as is the crime rate. The high school graduation rate is way up. These changes have not been reflected in improved conditions for those at the bottom as minimum wage workers are more educated and experienced than ever.

As much we might want to take David Brooks’ plea for considering complex cultural, social, and behavioral problems, de-industrialiation looks pretty much like a good old-fashioned economic problem. An over-valued dollar makes our goods uncompetitive internationally. If the currency is over-valued by 20 percent it is roughly equivalent to having a 20 percent tariff on all U.S. exports and a 20 percent subsidy on imports. In addition, if we have trade agreements that expose manufacturing workers to competition with low-paid workers in the developing world, while largely protecting highly paid professionals like doctors and lawyers, then we will have a serious problem of deindustrialization. That’s pretty much economics 101, it’s hard to see why any bigger explanation is needed on this one.

In fact Brooks tells us we have the story all wrong in seeing the dismal plight of the bulk of the population as being in any way linked to the riches of the one percent, who he politely hides behind the next four percent of the income distribution. Brooks tells us that the incredible wealth of the top one percent is a different story from the problems faced by the rest of us:

Thomas Friedman Tells Readers that “Compromise” Is Not a 4-Letter Word, Readers Tell Thomas Friedman That “Homework” Is Not Either

By: Dean Baker Sunday January 5, 2014 1:31 pm

Thomas Friedman once again pronounces a pox on both their houses, demanding that Republicans and Democrats compromise and embrace his agenda for moving the country forward. The big problem is that because Thomas Friedman apparently doesn’t believe in doing homework, he doesn’t actually have an agenda that would move the country forward.

Taking his items in turn, he calls for an investment agenda, with the qualification:

“But this near-term investment should be paired with long-term entitlement reductions, defense cuts and tax reform that would be phased in gradually as the economy improves, so we do not add to the already heavy fiscal burden on our children, deprive them of future investment resources or leave our economy vulnerable to unforeseen shocks, future recessions or the stresses that are sure to come when all the baby boomers retire.”

Now the folks who have done their homework know that projections for Medicare and Medicaid spending have been sharply reduced in the last five years as the Congressional Budget Office and other forecasters have incorporated part of the slowdown in cost growth that we have seen over this period. This means that the deficit projections for 10-15 years out don’t look nearly as scary as they did in the recent past. The reduction in projected cost growth exceeds the savings from almost any remotely feasible cut that might have been proposed five years ago.

On the Social Security side of the entitlement ledger, most older workers have almost nothing saved for retirement because people with names like Greenspan, Rubin, and Summers are not very competent at running an economy (another example of the skills shortage). This means that it is not practical to talk about cuts to Social Security for anyone retiring in the near future since this is the bulk of what most retirees will be living on. In fact, those who did their homework know that many people in Congress and across the country are now talking about increasing benefits. We can cut our children and grandchildren’s Social Security, but this is a dubious way to propose to help them.

Then we have Thomas Friedman’s energy agenda:

“We should exploit our new natural gas bounty, but only by pairing it with the highest environmental extraction rules and a national, steadily rising, renewable energy portfolio standard that would ensure that natural gas replaces coal — not solar, wind or other renewables. That way shale gas becomes a bridge to a cleaner energy future, not just an addiction to a less dirty, climate-destabilizing fossil fuel.”

Friedman apparently has not done his homework here either. Andrew Revkin, who certainly is not a knee-jerk enviro-type, devoted a blogpost to a new study indicating that fracking results in much higher emissions of methane gas than had previously been believed. While this study is not conclusive, its findings certainly deserve to be taken seriously. Unless they can be shown to be mistaken, it is wrong to imagine shale gas to be the bridge fuel Friedman claims.

Then we are told:

“In some cities, teachers’ unions really are holding up education reform.”

Really, the problem is teachers’ unions? Well, large chunks of the country don’t have any teachers’ unions to block reform. Yet, we don’t hear of Texas and Alabama beating out Finland (which does have teachers’ unions) for top rankings on standardized tests or other measures of student performance. Teachers’ unions have often come into conflict with self-proclaimed reformers. While the unions may have obstructed their agenda (which often seems largely focused on weakening teachers’ unions), it is far from clear that this has had negative outcomes for students. In the Chicago teachers’ strike in 2012, the most noteworthy recent confrontation, the parents overwhelmingly sided with the teachers, so apparently they haven’t been clued in on the benefits of reform.

Next we get Thomas Friedman’s theory of wage inequality:

“Finally, the merger of globalization and the information-technology revolution has shrunk the basis of the old middle class — the high-wage, middle-skilled job. Increasingly, there are only high-wage, high-skilled jobs.”

That’s a nice try, but the data don’t fit Thoams Friedman’s little hyper-connected technology driven story. My friends Larry Mishel, John Schmitt, and Heidi Shierholz looked at this issue very carefully. In the last decade the jobs that have been growing most rapidly are actually low-skilled occupations. If we want to look for reasons for wage inequality we might try items like declining unionization rates and high unemployment.

So Friedman is surely right that we should not view compromise as a 4-letter word, but that doesn’t mean we should agree on a policy agenda that is not grounded in evidence.

You Can Keep Your Insurance and the Washington Post Fact Checker: Round II

By: Dean Baker Monday November 11, 2013 8:31 am

Glenn Kessler, the Washington Post fact checker, again took a swipe at the Obama administration over its claim that under the ACA people would be able to keep their insurance if they liked their plan. (He earlier had given Obama the maximum of four Pinocchios over the issue.) The proximate cause is the administration’s efforts to blame insurers for cancelling plans, pointing out that the plans that were in place at the time the ACA was passed would be grandfathered and therefore would not be eliminated due to the requirements of the ACA.

Kessler responds by noting that the vast majority of plans in the individual market are for short periods of time. He presents evidence showing that 48.2 percent of individual plans are in effect less than 6 months and 64.5 percent are in effect less than year. Extrapolating from this evidence on the rate at which individuals leave plans, Kessler calculates that less than 4.8 percent of the people in the individual market have a plan that would be protected by this grandfather provision. Based on this assessment, he awards the Obama administration three Pinocchios for trying to blame the insurers for dropping plans.

While Kessler is undoubtedly correct in noting that few people would be protected by the grandfather provision, there are two important points worth pointing out. First, the vast majority of people hearing President Obama’s pledge would be covered by insurance through their employer. For these people it is absolutely true that the ACA allows them to keep their insurance.

As far as the minority in the individual market, while Kessler is correct that the grandfathering protects relatively few people because policies tend to be short-lived, this data also raises an issue about the pain caused by earlier than expected cancellations. Kessler’s data show that almost half of the plans will be held by people for less than six months and almost two-thirds will be held for less than a year. This means that most of the people being told that their plans are being cancelled probably would have left their plans in the first half of 2014 anyhow. While no one wants to buy insurance more than necessary, it hardly seems like a calamity if someone expected to leave their policy in March and will now have to arrange insurance through the exchange for two months.

Furthermore one has to ask about the role of insurers in this process. Kessler’s data imply that more than three quarters of the people in the individual market signed up for their policies for the first time in the last year. Didn’t insurers tell people at the time they sold the policies that these plans would only be in effect through the end of December because they did not comply with provisions in the ACA? If the insurers did inform their clients at the time they purchased their policies then they would not be surprised to find out now that they will need new insurance. If the insurance companies did not inform clients that their plans would soon be terminated then it seems that the insurers are the main culprits in this story, not the Obama administration.