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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.

Post Granny Bashers Are Whining for J.P. Morgan

By: Dean Baker Sunday October 20, 2013 7:05 am

You’ve got to love those Washington Post folks. They continuously use both their news and editorial sections to push for cuts to Social Security, Medicare, and disability insurance, running roughshod over journalistic standards and data. But when it comes to the Wall Street boys, they just can’t help but to tear at our heart strings.

Last week the Post ran an editorial bemoaning the “political persecution” of J.P. Morgan. It complained that the government was pursuing a civil case against J.P. Morgan for misrepresenting mortgage backed securities it sold to investors during the housing bubble years:
The entrance to the Washington Post on 15th street Northwest DC
“Yet roughly 70 percent of the securities at issue were concocted not by JPMorgan but by two institutions, Bear Stearns and Washington Mutual, that it acquired in 2008.”

There are two points worth making on this. First, if 70 percent of the securities came from Bear Stearns and Washington Mutual, then 30 percent came from J.P. Morgan. This means that it could have been involved in misrepresenting tens of billions of dollars in mortgage backed securities sold to investors. We have young men sitting in jail for stealing cars worth a few thousand dollars, but the Post thinks that Wall Street bankers should get a pass on fraudulently passing off tens of billions in bad mortgage backed securities.

The other point is that executives of large corporations like J.P. Morgan are supposed to understand that when they take over a company it can involve both upside and downside risks. On the upside, the company may have product lines or assets that the buyer did not fully appreciate at the time of the acquisition. On the downside, it may have liabilities such as the legal issues being raised in the Justice Department suit.

Believers in free markets would expect that a CEO like J.P. Morgan’s Jamie Dimon understood such risks at the time he chose to buy up Bear Stearns and Washington Mutual. However the Post apparently feels that he and his bank need a special hand from the government to change the terms of the deal after the fact and release J.P. Morgan from the billions of dollars of liabilities they inherited when they bought the banks. Their concern for the desperate plight of the Wall Street bankers is touching, but those of us who believe in free markets must insist on contracts being respected and laws being enforced.

It is worth noting that J.P. Morgan apparently disagreed with the Post and thought that the government had a pretty good case since it settled for $13 billion.

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.

The Washington Post Wants Seniors to Take a Hit to Keep Doctors and Drug Companies Rich

By: Dean Baker Thursday October 10, 2013 5:46 am

The Washington Post ran an editorial endorsing Republican House Budget Committee Chairman Paul Ryan’s proposal for ending the shutdown/debt ceiling standoff. It is apparently anxious to seize on yet another route to try to cut Social Security and Medicare benefits for seniors.

While the obvious crisis facing the country is a government that is not doing its job and an economy that is suffering enormously from a shortage of demand (i.e. too little government spending), the Post sees this as an opportunity to fix its invented crisis about the long-term budget deficit. This is in keeping with the Post’s basic philosophical principle that a dollar in the pockets of ordinary workers is a dollar that could be in the pocket of a rich person. The editorial therefore insisted once again that we have to cut Social Security and Medicare.

The story on Social Security is of course bizarre. Few people think that seniors have too much money. Most must face sharp reductions in living standards when they reach retirement. The median income for a person over age 65 is less than $20,000 a year, that’s a day or two’s pay for your typical Wall Street high flyer. Furthermore, Social Security is entirely funded from its dedicated tax for the next two decades. Even after the trust fund faces depletion in 2033 the overwhelming majority of benefits would still be payable from the tax. Eliminating the cap on income subject to the tax would fill most of the remaining gap.

The real story of budget deficits is in health care. And here the problem is that people in the United States pay way too much for the care we get. Although the quality of health care is no better in the United States than in other wealthy countries we pay more than twice as much per person as the average in other countries. If this gap persists, in the long-term it will create serious budget problems, since more than half of our health care is paid by the government.

There are two ways to reduce costs. One is to get our costs in line with what people pay in every other country. This would mean taking on the health care industry. Our doctors (who comprise close to 20 percent of the country’s richest 1 percent) would see their pay cut by roughly 50 percent, on average. We would cut what we pay for drugs and medical equipment by roughly the same amount. This could be done if we were prepared to eliminate the government protections that keep these prices so out of line with prices in the rest of the world.

This would mean opening our borders to more qualified foreign doctors and also educating more at home. (The reason free trade in physicians’ services is not being discussed in current trade agreements is that the doctors’ lobbies are too powerful and folks like the Post’s editors are happy with protectionism that redistributes money to the rich.) It would mean paying less to drug companies and medical equipment companies. It would also mean ending the massive waste of our private health insurance system.

Washington Post Beats Up on Disabled Workers, Again

By: Dean Baker Sunday September 22, 2013 6:05 pm

The Washington Post might not be very aggressive when it comes to billionaire too big to fail bankers, hedge and private equity fund swindlers, or pharmaceutical companies exploiting patent monopolies by pushing bad drugs, but when it comes to beating up on people getting $1,150 a month for disability, there is no one tougher. The Post is on the job again today with an editorial warning about the “explosive recent growth” in disability roles.

The Post conveniently ignores facts and reality in pushing its case. For example, it counters the views of “defenders of the program” with the views of “critics, including a significant number of academic economists.” Of course there are a large number of academic economists who are among the defenders of the program, but the Post did not think this point was worth mentioning; it could distract readers.

This sentence continues:

suggest that the program’s manipulable and inconsistently applied eligibility criteria have enabled millions of people who could work to sign up for benefits instead.

“Millions of people,” really? The work linked to in the paper won’t give you this number. One careful study that was produced by the University of Michigan a few years ago, identified categories of applicants that it deemed marginally eligible. It found that if this group was denied disability, 28 percent would be working two years later. Since this group accounted for 23 percent of applicants, that would mean 6.4 percent of applicants (28 percent of 23 percent) would be working in two years, if they were denied benefits.

There are currently just under 10 million disability beneficiaries. If we assume that 6.4 percent of these people would be working if they had been denied benefits that comes to 640,000 people. That is considerably short of “millions of people” in places other than the Washington Post opinion pages. Furthermore, the Michigan study found that the share of these marginal refusals who were working four years later fell to 16 percent, so the 640,000 figure is undoubtedly too high based on this analysis.

Of course the other point to keep in mind for those looking to crack down on these freeloaders is that our system will never be perfect. The inappropriate beneficiaries will not identify themselves. Any effort to tighten criteria to ensure that ineligible people don’t qualify will inevitably lead to more eligible people wrongly being denied benefits. In other words, the Post’s policy could mean that some people with terminal cancer don’t get benefits.

The piece then cites a study by economists at the San Francisco Federal Reserve Board:

They found that technical and demographic factors such as those cited by defenders of SSDI explained no more than 56 percent of the program’s growth, suggesting that a substantial portion — at least 44 percent — is because of the kind of structural defects and perverse incentives that critics have cited.

First, this misrepresents the study’s findings. It did not say that at least 44 percent of the growth in disability roles is “because of structural defects and perverse incentives.” It said that only 56 percent could be explained by technical and demographic factors. It is widely recognized outside of the pages of the Washington Post that it is more difficult for a person suffering from a disability to get a job in a weak economy than in a strong one. That does not mean that if these people apply for and receive disability benefits that it is due to the “structural defects and perverse incentives” of the program. The Post is simply ascribing its view to economists who certainly did not espouse these views themselves in the piece cited.

The cited paper also missed an important factor behind the increase in disability rates that the Congressional Budget Office noted in a 2010 study. CBO noted that the mortality rate for people with disabilities had fallen sharply since 1980. This means that if a person has a disability that keeps them from working they are likely to live much longer and therefore collect disability for a longer period of time.

The CBO study put the drop in the mortality rate between 1980 and 2008 at around 2 percentage points. With the lower mortality rate there is a 74 percent probability that a person on disability would survive ten years, with 1980 mortality rate the probability would have been less than 60 percent. This drop in the mortality rate would be an important factor explaining the rise in the number of people on disability which for some reason the Fed study neglected.

But there is no doubt that the bad economy is a major contributor to the rise in disability roles. In the reality based community this would be yet another reason for aggressively pursuing policies such as stimulus or a lower valued dollar that could bring us back to full employment. After all, in addition to the millions of lives being ruined by sustained periods of high unemployment we are also needlessly losing a trillion a year in output.

But the Post can’t be bothered talking about policies that would get us back to full employment, they’re worried that someone is running around with an $1,150 a month disability check to which they’re  not entitled; only in the Washington Post.

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.

Photo by Achifaifa under Creative Commons license

Fred Hiatt Just Makes It Up to Push Cuts to Medicare and Social Security

By: Dean Baker Sunday September 8, 2013 6:43 pm
Social Security card

Did the Washington Post claim Obama promised to cut social services.

Remember President Obama’s 2008 campaign where he promised to cut Social Security, Medicare, and Medicaid? Yeah, that was where he said, “yes we can.”

Okay you probably don’t remember it because if he ever said he wanted to cut Social Security, Medicare, and Medicaid, the media strangely did not bother to report it. But that does not stop Fred Hiatt from claiming in his Washington Post column:

President Obama came into office five years ago promising to make hard decisions, not to kick the can down the road, not to let entitlement programs — primarily Medicare, Medicaid and Social Security — swallow the rest of the budget.

This is the Washington Post so perhaps we should not expect much in the way of accuracy, but even for the Post this is pretty far out. After all, in the real world Obama never said anything remotely like this in the 2008 campaign. Hiatt is just putting his senior-bashing agenda in the mouth of President Obama, hoping he can fool some readers. That is really pathetic.

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.

People Without Names Continue to Push for Larry Summers

By: Dean Baker Friday September 6, 2013 2:06 am

If the new Fed chair was being selected by people without names Larry Summers would win hands down. The Post gives us yet another article assuring us that Larry Summers is a good guy that depends almost entirely on unnamed sources.

The article gives us supportive comments from “many of his colleagues,” “people close to Summers,” and “one person who knows Summers.” There is one named source in the piece. That would be Christina Romer, the former head of the Council of Economic Advisers, who opposes appointing Summers as Fed chair.

Most serious newspapers try to restrict the use of unnamed sources to exceptional situations. The reason is that it allows them to use the paper to advance their agenda. Apparently the Post has little interest in such journalistic standards.

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.