Washington Post Warns Readers of Republican Accounting Trick on 401(k)s

September 17, 2017

17 Septiembre 2017

Of course, the paper did not actually warn of the cheap trick the Republicans are considering. It just mentioned it in passing as though it was a serious policy proposal:

“House Republicans are considering a key change to 401(k)s as part of their tax overhaul package: Taxing the money that workers place in their savings plans upfront instead of years later when they take it out in retirement.”

The only possible rationale for taxing money when it is put into a 401(k) account rather than when it is pulled out is to change the timing of tax collections since there will be little net change in revenue over the long-term. By taxing the payments into the system, the government will collect more revenue during the 10-year horizon over which budget projections are made. However, this will be almost completely offset by lower tax collections in later years.

As policy, this makes zero sense. The point of 401(k)s is supposed to be encouraging people to save. There is much research showing that the prospect of an immediate tax saving gives strong incentive to save. This means that eliminating the immediate tax deduction will almost certainly mean less savings in 401(k)s.

There is the advantage that this change will appear to offset the lost revenue from Republican tax cuts for rich people. Unfortunately, most Post readers might not be aware of this rationale for the policy change.

Of course, the paper did not actually warn of the cheap trick the Republicans are considering. It just mentioned it in passing as though it was a serious policy proposal:

“House Republicans are considering a key change to 401(k)s as part of their tax overhaul package: Taxing the money that workers place in their savings plans upfront instead of years later when they take it out in retirement.”

The only possible rationale for taxing money when it is put into a 401(k) account rather than when it is pulled out is to change the timing of tax collections since there will be little net change in revenue over the long-term. By taxing the payments into the system, the government will collect more revenue during the 10-year horizon over which budget projections are made. However, this will be almost completely offset by lower tax collections in later years.

As policy, this makes zero sense. The point of 401(k)s is supposed to be encouraging people to save. There is much research showing that the prospect of an immediate tax saving gives strong incentive to save. This means that eliminating the immediate tax deduction will almost certainly mean less savings in 401(k)s.

There is the advantage that this change will appear to offset the lost revenue from Republican tax cuts for rich people. Unfortunately, most Post readers might not be aware of this rationale for the policy change.

NYT Goes Hard Core Protectionist

By CEPRCEPR

September 17, 2017

17 Septiembre 2017

We all know how hard it is for people with advanced degrees to compete in the global economy, but how much government help do we have to give them? Apparently, whatever we give them in strong patent and copyright protections (yes folks, this is protectionism, no matter how much you like it) is not enough.

In an editorial on relations with China, the NYT offers this encouraging (to the rich) pronouncement:

“On intellectual property, now that China is putting energy into developing its own technology instead of just stealing America’s, the two could work together on stronger protections.”

Isn’t that great? We can redistribute more money to people who benefit from patent and copyright monopolies and then say it’s just unfortunate that technology leads to an upward redistribution of income. And most of our intellectual class are sufficiently s**t-for-brains to treat that as a serious argument.

And yes folks, there are alternatives to patent and copyright monopolies for financing research and creative work. But, as we all know, intellectuals have a hard time dealing with new ideas.

We all know how hard it is for people with advanced degrees to compete in the global economy, but how much government help do we have to give them? Apparently, whatever we give them in strong patent and copyright protections (yes folks, this is protectionism, no matter how much you like it) is not enough.

In an editorial on relations with China, the NYT offers this encouraging (to the rich) pronouncement:

“On intellectual property, now that China is putting energy into developing its own technology instead of just stealing America’s, the two could work together on stronger protections.”

Isn’t that great? We can redistribute more money to people who benefit from patent and copyright monopolies and then say it’s just unfortunate that technology leads to an upward redistribution of income. And most of our intellectual class are sufficiently s**t-for-brains to treat that as a serious argument.

And yes folks, there are alternatives to patent and copyright monopolies for financing research and creative work. But, as we all know, intellectuals have a hard time dealing with new ideas.

David Brooks Gets Story on Wage Growth and Productivity Completely Wrong

By CEPRCEPR

September 15, 2017

15 Septiembre 2017

Yeah, what else is new. After all, no one thinks that a conservative columnist writing for the country’s most important newspaper should have any clue about the topics they cover.

Brooks uses his column today to tell us that workers are getting their share of the economic pie and the real problem is productivity growth.

“The problem of the middle-class squeeze, in short, may not be with how the fruits of productivity are distributed, but the fact that there isn’t much productivity growth at all. It’s not that a rising tide doesn’t lift all boats; it’s that the tide is not rising fast enough.”

Sorry Mr. Brooks, but the numbers don’t agree with you. Here’s the story on average hourly earnings for production and non-supervisory workers since 2007. This is a good proxy for the median wage since it excludes high-end workers like doctors, Wall Street types, and CEOs.

wages production

Source: Bureau of Labor Statistics.

After rising by less than 2.0 percent between 2007 and 2013, real wages have started to grow at a respectable pace in the last four years. Still, they are just 8.0 percent above their 2007 level. By contrast, productivity has risen by 13.7 percent over this period. That’s a difference of 5.7 percentage points over the last decade.

For a person earning $40,000 a year, the loss due to the gap between productivity growth and wage growth is equivalent to a tax increase of $2,280 a year. Would Brooks try to tell readers that a tax increase of this magnitude is small change? If we go further back to 1980, when inequality first started to take off, the gap would be closer to 40 percentage points. Anyhow, it’s cute that Brooks wants to tell us not to think about all the money going to rich people and just concentrate on productivity growth, but this stuff is too silly even for children’s games.

There, however, is one point here worth noting. As unemployment has fallen, workers have been seeing their share of gains from productivity growth. This is a huge deal, which points to the importance of Federal Reserve Board policy.

There were many economists who wanted the Fed to take a tighter stance on monetary policy and keep the unemployment rate from falling as low as it has. The decision by the Fed to be relatively slow in raising interest rates has not only allowed millions of additional workers to get jobs, it has also meant higher pay for those who were already working. This makes an enormous difference to the country’s workers, but don’t expect to see anything about it in a David Brooks column.

Yeah, what else is new. After all, no one thinks that a conservative columnist writing for the country’s most important newspaper should have any clue about the topics they cover.

Brooks uses his column today to tell us that workers are getting their share of the economic pie and the real problem is productivity growth.

“The problem of the middle-class squeeze, in short, may not be with how the fruits of productivity are distributed, but the fact that there isn’t much productivity growth at all. It’s not that a rising tide doesn’t lift all boats; it’s that the tide is not rising fast enough.”

Sorry Mr. Brooks, but the numbers don’t agree with you. Here’s the story on average hourly earnings for production and non-supervisory workers since 2007. This is a good proxy for the median wage since it excludes high-end workers like doctors, Wall Street types, and CEOs.

wages production

Source: Bureau of Labor Statistics.

After rising by less than 2.0 percent between 2007 and 2013, real wages have started to grow at a respectable pace in the last four years. Still, they are just 8.0 percent above their 2007 level. By contrast, productivity has risen by 13.7 percent over this period. That’s a difference of 5.7 percentage points over the last decade.

For a person earning $40,000 a year, the loss due to the gap between productivity growth and wage growth is equivalent to a tax increase of $2,280 a year. Would Brooks try to tell readers that a tax increase of this magnitude is small change? If we go further back to 1980, when inequality first started to take off, the gap would be closer to 40 percentage points. Anyhow, it’s cute that Brooks wants to tell us not to think about all the money going to rich people and just concentrate on productivity growth, but this stuff is too silly even for children’s games.

There, however, is one point here worth noting. As unemployment has fallen, workers have been seeing their share of gains from productivity growth. This is a huge deal, which points to the importance of Federal Reserve Board policy.

There were many economists who wanted the Fed to take a tighter stance on monetary policy and keep the unemployment rate from falling as low as it has. The decision by the Fed to be relatively slow in raising interest rates has not only allowed millions of additional workers to get jobs, it has also meant higher pay for those who were already working. This makes an enormous difference to the country’s workers, but don’t expect to see anything about it in a David Brooks column.

Fighting Bubbles: High Interest Rates Are Not the Best Route

By CEPRCEPR

September 14, 2017

14 Septiembre 2017

Ruchir Sharma, the chief global strategist at Morgan Stanley Investment Management, used his NYT column to argue that central banks have to include fighting asset bubbles on their agenda, in addition to promoting high employment and low inflation. As someone who has argued this for two decades, I am sympathetic to the point; however, Sharma gets a couple of big things wrong. First, the big issue with bubbles is whether they are moving the economy. This is something that is easy to determine for folks familiar with introductory economics. The issue here is whether some component of demand is out of line with its long-term trend. That was easy to see in the late 1990s as the wealth created by the stock bubble led to a consumption boom, pushing the saving rate to a then-record low. The investment share of GDP also became unusually high, with investment concentrated in the tech sector where stock prices were most out of line with corporate profits. The same was true of the housing bubble in the last decade. Residential construction hit a record 6.5 percent share of GDP, a level that clearly did not make sense given the underlying demographics of the country. The wealth effect from the bubble created housing wealth led to an even larger consumption boom than the 1990s stock bubble, as savings rates fell even lower than they had in the late 1990s. It is difficult to understand how the Fed could have missed the impact of the bubble or think that these sources of demand could be easily replaced when the bubble burst.

The Big Problem in Media Coverage of Foreign Aid: No Context

By CEPRCEPR

September 13, 2017

13 Septiembre 2017

Morning Edition had a segment on efforts to counter the Trump administration’s proposal to cut foreign aid, including money going to the Global Fund to Fight AIDS, Tuberculosis, and Malaria. The segment featured a comment from Bill Gates, whose foundation also supports this fund.

Gates noted the lack of support for foreign aid and attributed it to the media’s tendency to highlight failures, where money is poorly spent or stolen, as opposed to the success stories. While there is undoubtedly some truth to this argument, the more likely problem is the fratboy reporting on budget issues that gives the audience zero context.

In the case of the Global Fund, when people hear about it they are likely to hear that the U.S. will spend up to $4.3 billion this year. This might lead people to think that we are devoting a substantial share of the budget to this fund, at the expense of other programs and/or raising people’s taxes.

In fact, this sum is roughly to 0.1 percent of the budget, it comes to roughly $13 per person for everyone in the country. For another comparison, it is roughly 36 times the excess cost (the amount paid beyond what it cost to protect a normal president) of Donald Trump’s secret service protection. In other words, it would not be the reason that people are paying taxes they consider high.

Polls consistently show the public grossly overestimates the share of the budget going to foreign aid, with median estimates in the range of 25 to 30 percent of the budget, when the total is less than 1.0 percent, even when being very generous about what counts as aid. This is likely due at least in part to the fratboy reporting on aid, which gives people no information whatsoever.

It is amazing that National Public Radio, the New York Times, and other leading news outlets continue the bizarre practice of reporting large numbers without context, even when everyone knows it is not providing information to the vast majority of their audience. It is a very simple matter to express a budget number as a share of the total budget or to use some other comparison that would give it meaning to listeners and readers. However, news outlets refuse to do this.

They instead engage in mindless fratboy reporting where they carry through the ritual of giving a large number that means absolutely nothing to the people who see it, and then pretend they have done their job. This is a major reason people are hostile to programs like foreign aid, TANF, food stamps and other programs that benefit the poor here and elsewhere.

Yes, I know many people are racist and hate these programs for that reason. But many people who are not especially racist (i.e. they vote for people like Hillary Clinton) also believe that 30 percent of our budget goes to foreign aid or TANF. If these programs actually did cost that much much money, there would be good reasons for not supporting them, since they don’t have that much to show.