Okay, I made up that number, but suppose that I did calculate the amount of money that average holder of government bonds gets in interest each year and compared it to what we spent on children. According to the logic that they use at the Urban Institute (as recounted by Ezra Klein) I would have demonstrated a tendency for our government to favor bondholders at the expense of our nation’s children.
The sophisticates out there would surely point out that bondholders paid for their bonds and therefore are entitled to the interest they get on these bonds. Bravo!
Now if anyone with the same level of sophistication entered the halls of the Urban Institute they could point out that we run a old age, survivors and disability insurance program through the government (Social Security) as well as a senior health insurance program (Medicare). The fact that people collect benefits from these programs reflects the fact that they paid premiums during their working lifetimes — just like bondholders get interest because they paid for their bonds.
In fact, as the Urban Institute has shown, on average Social Security beneficiaries will get slightly less back in benefits than what they paid into the program in premiums. Medicare beneficiaries will get more back, but this is because we pay way more money to our doctors, drug companies and other health care providers than any other people on the planet. In other words, the big gainers here are the providers, not our seniors.
Anyhow, the comparison of payments to seniors with payments to children makes as much sense as comparing payments to bondholders with payments to children. It is understandable that people who want to cut Social Security and Medicare would make such comparisons (or cut interest payments to bondholders), but it is hard to see why anyone engaged in honest policy debate would take such comparisons seriously.
Okay, I made up that number, but suppose that I did calculate the amount of money that average holder of government bonds gets in interest each year and compared it to what we spent on children. According to the logic that they use at the Urban Institute (as recounted by Ezra Klein) I would have demonstrated a tendency for our government to favor bondholders at the expense of our nation’s children.
The sophisticates out there would surely point out that bondholders paid for their bonds and therefore are entitled to the interest they get on these bonds. Bravo!
Now if anyone with the same level of sophistication entered the halls of the Urban Institute they could point out that we run a old age, survivors and disability insurance program through the government (Social Security) as well as a senior health insurance program (Medicare). The fact that people collect benefits from these programs reflects the fact that they paid premiums during their working lifetimes — just like bondholders get interest because they paid for their bonds.
In fact, as the Urban Institute has shown, on average Social Security beneficiaries will get slightly less back in benefits than what they paid into the program in premiums. Medicare beneficiaries will get more back, but this is because we pay way more money to our doctors, drug companies and other health care providers than any other people on the planet. In other words, the big gainers here are the providers, not our seniors.
Anyhow, the comparison of payments to seniors with payments to children makes as much sense as comparing payments to bondholders with payments to children. It is understandable that people who want to cut Social Security and Medicare would make such comparisons (or cut interest payments to bondholders), but it is hard to see why anyone engaged in honest policy debate would take such comparisons seriously.
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Robert Rubin is best known as the man who pocketed more than $100 million as a top Citigroup honcho as it played a central role in pumping up the housing bubble that sank the economy. However, because of the incompetence (corruption?) of the Washington media, he is much better known as a great hero of economic policy.
Ezra Klein helps to feed this myth when he tells us of the great virtue of deficit reduction in the Clinton years.
“Back in the 1990s, we knew why we feared deficits. They raised interest rates and “crowded out” private borrowing. This wasn’t an abstract concern. In 1991, the interest rate on 10-year Treasurys was 7.86 percent. That meant the interest rate for private borrowing was, for the most part, much higher, choking off investment and economic growth.
“Enter Clintonomics. The theory was simple: Bring down deficits, and you’d bring down interest rates. Bring down interest rates, and you’d make it easier for the private sector to invest and grow. Make it easier for the private sector to invest and grow, and the economy would boom.
“The theory was correct. By the end of Clinton’s term, the interest rate on 10-year Treasurys had fallen to 5.26 percent — lower than it had been in 30 years. And the economy was, indeed, booming. ‘The deficit reduction increased confidence, helped bring interest rates down, and that, in turn, helped generate and sustain the economic recovery, which, in turn, reduced the deficit further,’ Treasury Secretary Robert Rubin said in 1998.”
Okay, fans of intro economics know that it is the real interest — the difference between the nominal interest rate and the inflation rate — that matters for investment, not the nominal interest rate. The inflation rate in the first half of 1991 was over 5.0 percent. This means that the real interest rate — the rate that all economists understand is relevant for growth — around 2.5 percent.
Is that bad? If we take the last half year of the Clinton administration (and not some cherry picked low-point) the interest rate on 10-year Treasury bonds averaged around 5.7 percent. The inflation rate for the second half of 2000 averaged around 3.5 percent. This gives us a a real interest rate of 2.2 percent (5.7 percent minus 3.5 percent equals 2.2 percent).
So we are supposed to believe that the difference between the 2.5 percent real interest rate in the high deficit pre-Clinton years and the 2.2 percent real interest rate at the end of the Clinton years is the difference between the road to hell and the path to prosperity? This is the sort of nonsense that you tell to children. It might past muster with DC pundits, but serious people need not waste their time.
The story of the boom of the Clinton years was an unsustainable stock bubble. This led to a surge in junk investment like Pets.com. It led to an even larger surge in consumption. People spent based on their stock wealth, pushing the saving rate to a then record low of 2.0 percent (compared to an average of 8.0 percent in the pre-bubble decades).
Robert Rubin acolytes may not like it, but the deficit reduction was a minor actor in the growth of the 1990s. The bubble was the real story. That may not be a smart thing to say if you’re looking for a job in the Obama administration, but it happens to be the truth. You have to really torture the data to get a different conclusion.
Robert Rubin is best known as the man who pocketed more than $100 million as a top Citigroup honcho as it played a central role in pumping up the housing bubble that sank the economy. However, because of the incompetence (corruption?) of the Washington media, he is much better known as a great hero of economic policy.
Ezra Klein helps to feed this myth when he tells us of the great virtue of deficit reduction in the Clinton years.
“Back in the 1990s, we knew why we feared deficits. They raised interest rates and “crowded out” private borrowing. This wasn’t an abstract concern. In 1991, the interest rate on 10-year Treasurys was 7.86 percent. That meant the interest rate for private borrowing was, for the most part, much higher, choking off investment and economic growth.
“Enter Clintonomics. The theory was simple: Bring down deficits, and you’d bring down interest rates. Bring down interest rates, and you’d make it easier for the private sector to invest and grow. Make it easier for the private sector to invest and grow, and the economy would boom.
“The theory was correct. By the end of Clinton’s term, the interest rate on 10-year Treasurys had fallen to 5.26 percent — lower than it had been in 30 years. And the economy was, indeed, booming. ‘The deficit reduction increased confidence, helped bring interest rates down, and that, in turn, helped generate and sustain the economic recovery, which, in turn, reduced the deficit further,’ Treasury Secretary Robert Rubin said in 1998.”
Okay, fans of intro economics know that it is the real interest — the difference between the nominal interest rate and the inflation rate — that matters for investment, not the nominal interest rate. The inflation rate in the first half of 1991 was over 5.0 percent. This means that the real interest rate — the rate that all economists understand is relevant for growth — around 2.5 percent.
Is that bad? If we take the last half year of the Clinton administration (and not some cherry picked low-point) the interest rate on 10-year Treasury bonds averaged around 5.7 percent. The inflation rate for the second half of 2000 averaged around 3.5 percent. This gives us a a real interest rate of 2.2 percent (5.7 percent minus 3.5 percent equals 2.2 percent).
So we are supposed to believe that the difference between the 2.5 percent real interest rate in the high deficit pre-Clinton years and the 2.2 percent real interest rate at the end of the Clinton years is the difference between the road to hell and the path to prosperity? This is the sort of nonsense that you tell to children. It might past muster with DC pundits, but serious people need not waste their time.
The story of the boom of the Clinton years was an unsustainable stock bubble. This led to a surge in junk investment like Pets.com. It led to an even larger surge in consumption. People spent based on their stock wealth, pushing the saving rate to a then record low of 2.0 percent (compared to an average of 8.0 percent in the pre-bubble decades).
Robert Rubin acolytes may not like it, but the deficit reduction was a minor actor in the growth of the 1990s. The bubble was the real story. That may not be a smart thing to say if you’re looking for a job in the Obama administration, but it happens to be the truth. You have to really torture the data to get a different conclusion.
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Economists usually believe that companies try to make as much money as possible. This is why readers of an NYT article on plans to reduce Medicare payments for drugs might have been surprised to see the comment:
“Some have speculated that other consumers could end up paying for the cost savings if drug makers raise their prices to account for the lost revenue. ‘That money has to come from somewhere,’ said Douglas Holtz-Eakin.”
This statement implies that drug companies have a group of customers from whom they could now be making more money, but for some reason are choosing not to. This is not consistent with how economists think the economy works. It is difficult to imagine that Pfizer, Merck or any of the other big drug companies are voluntarily choosing to forgo profits. If it is possible for drug companies to get more money by raising prices, then it would be expected that they would have already raised prices.
The piece also includes speculation on why the Medicare drug benefit cost less than had been projected. The main reason is that drug costs in general have risen much less rapidly than had been projected.
Economists usually believe that companies try to make as much money as possible. This is why readers of an NYT article on plans to reduce Medicare payments for drugs might have been surprised to see the comment:
“Some have speculated that other consumers could end up paying for the cost savings if drug makers raise their prices to account for the lost revenue. ‘That money has to come from somewhere,’ said Douglas Holtz-Eakin.”
This statement implies that drug companies have a group of customers from whom they could now be making more money, but for some reason are choosing not to. This is not consistent with how economists think the economy works. It is difficult to imagine that Pfizer, Merck or any of the other big drug companies are voluntarily choosing to forgo profits. If it is possible for drug companies to get more money by raising prices, then it would be expected that they would have already raised prices.
The piece also includes speculation on why the Medicare drug benefit cost less than had been projected. The main reason is that drug costs in general have risen much less rapidly than had been projected.
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Allan Sloan used his column today to explain a simple but often overlooked point, when interest rates rise, bond prices fall. This means that if long-term interest rates rise substantially in a few years, as the Congressional Budget Office predicts, then the bonds issued at very low interest rates today will be selling at large discounts.
The implication of this fact is that in 2015 or 2016, the Treasury would be able to purchase back much of the debt issued today at substantial discounts. This would allow it to drastically reduce the government’s debt at no cost. For example, if it bought back debt with a face value of $4 trillion at an average discount of 20 percent, it could instantly eliminate $800 billion in debt, reducing the debt to GDP ratio by almost 5 percentage points.
This step would be pointless from either an economic or financial standpoint since it would not change the interest burden facing the country, but it should make many of the deficit cultists happy. Since these cultists, who largely control the economic debate in the United States, assign some mystical power to specific debt to GDP ratios, they should be pacified by the knowledge that we can buy bonds back at a discount to keep the debt burden under their magic number. This route is much simpler than raising taxes or cutting spending.
Allan Sloan used his column today to explain a simple but often overlooked point, when interest rates rise, bond prices fall. This means that if long-term interest rates rise substantially in a few years, as the Congressional Budget Office predicts, then the bonds issued at very low interest rates today will be selling at large discounts.
The implication of this fact is that in 2015 or 2016, the Treasury would be able to purchase back much of the debt issued today at substantial discounts. This would allow it to drastically reduce the government’s debt at no cost. For example, if it bought back debt with a face value of $4 trillion at an average discount of 20 percent, it could instantly eliminate $800 billion in debt, reducing the debt to GDP ratio by almost 5 percentage points.
This step would be pointless from either an economic or financial standpoint since it would not change the interest burden facing the country, but it should make many of the deficit cultists happy. Since these cultists, who largely control the economic debate in the United States, assign some mystical power to specific debt to GDP ratios, they should be pacified by the knowledge that we can buy bonds back at a discount to keep the debt burden under their magic number. This route is much simpler than raising taxes or cutting spending.
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For some reason the NYT keeps using the official German unemployment rate in its coverage of Germany’s economy rather than the OECD harmonized rate. The official German rate includes workers who are involuntarily working part-time. By contrast, the OECD essentially uses the same methodology as the United States.
Therefore the NYT badly misled readers when it reported that Germany’s unemployment rate is 7.4 percent. The OECD harmonized unemployment rate in Germany is 5.3 percent.
For some reason the NYT keeps using the official German unemployment rate in its coverage of Germany’s economy rather than the OECD harmonized rate. The official German rate includes workers who are involuntarily working part-time. By contrast, the OECD essentially uses the same methodology as the United States.
Therefore the NYT badly misled readers when it reported that Germany’s unemployment rate is 7.4 percent. The OECD harmonized unemployment rate in Germany is 5.3 percent.
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That’s what readers of this NYT piece hyping a European-U.S. trade agreement should be asking. It begins by telling readers:
“President Obama’s call for a free-trade agreement between the United States and the European Union has unleashed a wave of optimism on both sides that a breakthrough can be achieved that would lift trans-Atlantic fortunes, not just economically but politically.’
Really? How much of an economic boost should be anticipated from this deal? Will it make up for the impact of the sequester and the end of the payroll tax cut?
That’s not very likely. We don’t know what a final deal will look like, but a couple of months ago David Ignatius was touting the prospect of a deal in a Washington Post column. He cited a study that projected that the complete elimination of all tariff barriers would raise GDP in the U.S. by about 0.9 percent.
Note that this 0.9 boost to GDP is a one-time gain and not an increase to the growth rate. The provisions in these deals are typically phased in over a period of years and it also takes the economy time to adjust to a reduction in tariff rates. If we assume that the effects of an agreement are seen over ten years, we would expect to see an increase in the growth rate of 0.09 percentage points, if the projections from this model prove accurate. Of course since we are unlikely to see the complete elimination of tariff barriers, the actual impact on growth will almost certainly be less than 0.09 percentage points annually.
The point is that this deal is not a serious way to boost the economy in the sense of providing an alternative to stimulus. The deal may well be beneficial to the economies of both the U.S. and the EU, however portraying it as a way to move these economies back to full employment badly misleads readers.
This piece uses the term “free-trade” to describe the proposed pact five times. Many of the provisions of the pact will likely have nothing to do with reducing barriers to trade and some, such as increased patent and copyright protection, may actually increase them. It would therefore be more accurate to simply refer to the pact as a “trade agreement.”
That’s what readers of this NYT piece hyping a European-U.S. trade agreement should be asking. It begins by telling readers:
“President Obama’s call for a free-trade agreement between the United States and the European Union has unleashed a wave of optimism on both sides that a breakthrough can be achieved that would lift trans-Atlantic fortunes, not just economically but politically.’
Really? How much of an economic boost should be anticipated from this deal? Will it make up for the impact of the sequester and the end of the payroll tax cut?
That’s not very likely. We don’t know what a final deal will look like, but a couple of months ago David Ignatius was touting the prospect of a deal in a Washington Post column. He cited a study that projected that the complete elimination of all tariff barriers would raise GDP in the U.S. by about 0.9 percent.
Note that this 0.9 boost to GDP is a one-time gain and not an increase to the growth rate. The provisions in these deals are typically phased in over a period of years and it also takes the economy time to adjust to a reduction in tariff rates. If we assume that the effects of an agreement are seen over ten years, we would expect to see an increase in the growth rate of 0.09 percentage points, if the projections from this model prove accurate. Of course since we are unlikely to see the complete elimination of tariff barriers, the actual impact on growth will almost certainly be less than 0.09 percentage points annually.
The point is that this deal is not a serious way to boost the economy in the sense of providing an alternative to stimulus. The deal may well be beneficial to the economies of both the U.S. and the EU, however portraying it as a way to move these economies back to full employment badly misleads readers.
This piece uses the term “free-trade” to describe the proposed pact five times. Many of the provisions of the pact will likely have nothing to do with reducing barriers to trade and some, such as increased patent and copyright protection, may actually increase them. It would therefore be more accurate to simply refer to the pact as a “trade agreement.”
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In his State of the Union Address last night President Obama told the country that unspecified economists say that we need to reduce the deficit over the next decade by $4 trillion from the levels projected in 2010. It would have been worth noting that almost all of the economists who say this completely missed the $8 trillion housing bubble whose collapse sank the economy. There is no reason to believe that their understanding of the economy has improved in the last 5 or 6 years.
It would be helpful to remind listeners that President Obama is apparently having his economic policy dictated by economists who do not seem to know how the economy works.
In his State of the Union Address last night President Obama told the country that unspecified economists say that we need to reduce the deficit over the next decade by $4 trillion from the levels projected in 2010. It would have been worth noting that almost all of the economists who say this completely missed the $8 trillion housing bubble whose collapse sank the economy. There is no reason to believe that their understanding of the economy has improved in the last 5 or 6 years.
It would be helpful to remind listeners that President Obama is apparently having his economic policy dictated by economists who do not seem to know how the economy works.
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Just as little kids like to believe in Santa Claus and the Tooth Fairy, Washington insiders like to believe that the Bowles Simpson commission issued a report. Of course the commission did not issue a report.
The commission’s by-laws state that a report would need the support of 14 of the 18 members of the commission. There was no report that met threshold and in fact no formal vote was ever taken on any report. The document in question should properly be referred to as the report of the co-chairs, former Senator Alan Simpson and Morgan Stanley director Erskine Bowles.
It might be painful to accept the truth, but there is no Santa Claus, Tooth Fairy or Bowles-Simpson Commission report.
Just as little kids like to believe in Santa Claus and the Tooth Fairy, Washington insiders like to believe that the Bowles Simpson commission issued a report. Of course the commission did not issue a report.
The commission’s by-laws state that a report would need the support of 14 of the 18 members of the commission. There was no report that met threshold and in fact no formal vote was ever taken on any report. The document in question should properly be referred to as the report of the co-chairs, former Senator Alan Simpson and Morgan Stanley director Erskine Bowles.
It might be painful to accept the truth, but there is no Santa Claus, Tooth Fairy or Bowles-Simpson Commission report.
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The NYT had an article that focused on efforts to get more immigrants with skills in science, technology, engineering, and mathematics (STEM). This effort would have the effect of lowering the wages of workers in these fields, thereby saving companies money. However the piece does not mention immigrant doctors, the area where the country could most obviously benefit from increased immigration.
Pay for doctors in the United States averages more than $250,000 a year, roughly twice the pay of physicians in Europe. If immigration could bring the pay of U.S. doctors down by an average of $100,000 it would save the country close to $100 billion annually on its health care bill and lead to hundreds of thousands of new jobs in other areas. It is striking that the media almost never note this fact in the context of its discussion of immigration.
This NYT piece was also striking in its discussion of the immigration of STEM workers since it did not include the views of anyone who represents workers in these fields. One of the central issues raised by workers is whether they will be able to have free mobility when they come into the country or whether they will be tied to specific employers. The current H1-B system ties workers to specific employers, which denies them the bargaining power they would have if they could move between employers. It is remarkable that this issue was not even raised in this piece.
The NYT had an article that focused on efforts to get more immigrants with skills in science, technology, engineering, and mathematics (STEM). This effort would have the effect of lowering the wages of workers in these fields, thereby saving companies money. However the piece does not mention immigrant doctors, the area where the country could most obviously benefit from increased immigration.
Pay for doctors in the United States averages more than $250,000 a year, roughly twice the pay of physicians in Europe. If immigration could bring the pay of U.S. doctors down by an average of $100,000 it would save the country close to $100 billion annually on its health care bill and lead to hundreds of thousands of new jobs in other areas. It is striking that the media almost never note this fact in the context of its discussion of immigration.
This NYT piece was also striking in its discussion of the immigration of STEM workers since it did not include the views of anyone who represents workers in these fields. One of the central issues raised by workers is whether they will be able to have free mobility when they come into the country or whether they will be tied to specific employers. The current H1-B system ties workers to specific employers, which denies them the bargaining power they would have if they could move between employers. It is remarkable that this issue was not even raised in this piece.
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David Brooks told us again today that he doesn’t like Social Security and Medicare. He does this frequently in his columns although usually while he ostensible makes some other point.
Today’s other point is that the country is less forward thinking in the past. A main piece of evidence in this regard is the money that we are spending on Medicare and Social Security.
“The federal government is a machine that takes money from future earners and spends it on health care for retirees. Entitlement spending hurts the young in two ways. It squeezes government investment programs that boost future growth. Second, the young will have to pay the money back.”
Both parts of this are of course wrong. Brooks assumes that the federal government would be able to collect the same tax revenue if it didn’t have Medicare as if it did. That is implausible. Medicare is an enormously popular program for which people are willing to tax themselves. It is not likely that if we nixed Medicare that we could raise the same tax revenue and simply use the money for something else. (We would at least have to change the name for the designated Medicare tax.)
It is also important to note that the excessive spending for Medicare is not due to the fact that seniors in the United States are getting such good care, but rather that we pay more than twice as much per person as people in other wealthy countries. If we paid the same as people in other wealthy countries then we would be looking at long-term budget surpluses, not deficits. In this sense it is not a question of transferring money from future earners to give to retirees, it is a question of taking money from future retirees to pay drug companies, doctors, and others in the health care industry.
It is also inaccurate to say “the young will have to pay the money back.” Of course the debt never literally has to be paid back, the government debt has grown in nominal terms almost every year in the last century. Even the interest will be paid from some future earners to other future earners so government debt ends up being a transfer within generations, not between generations.
The piece also includes a couple of other items about a lack of future orientation that are between bizarre and wrong. Brooks tells readers:
“Banks can lend money in two ways. They can lend to fund investments or they can lend to fund real estate purchases and other consumption. In 1982, banks were lending out 80 cents for investments for every $1 they were lending for consumption. By 2011, they lent only 30 cents to fund investments for every $1 of consumption.”
No data source is cited for this statistic, however if Brooks is just referring to bank lending (as opposed to all credit) then the obvious explanation would be the development of the junk bond market. Many mid-sized and even large firms that would have been dependent on bank loans for investment in 1982 (the middle of the recession — a year when housing was hugely depressed) can now borrow directly in capital markets without going to banks. It is not clear what this tells us about the country’s future orientation.
He then adds:
“Increasingly, companies have to spend their money on retirees, not future growth. Last week, for example, Ford announced that it was spending $5 billion to shore up its pension program. That’s an amount nearly equal to Ford’s investments in factories, equipment and innovation.”
This one is a real head-scratcher. Has Brooks missed the plunge in defined benefit pensions over the last three decades? How about the rapid disappearance of employee health care coverage? The trend here seems to be going rapidly in the other direction. Pensions are of course are part of workers’ compensation, just like pay. Companies are supposed to put aside money at the time pension liabilities are accrued, so a properly managed pension fund does not imply a drain on the future.
Of course the country does seem to have shortage of people with proper skills in finance, so many companies do have underfunded pensions. However this has little to do with preferring the present over the future, as opposed to a simple lack of skills in an important sector of the economy.
David Brooks told us again today that he doesn’t like Social Security and Medicare. He does this frequently in his columns although usually while he ostensible makes some other point.
Today’s other point is that the country is less forward thinking in the past. A main piece of evidence in this regard is the money that we are spending on Medicare and Social Security.
“The federal government is a machine that takes money from future earners and spends it on health care for retirees. Entitlement spending hurts the young in two ways. It squeezes government investment programs that boost future growth. Second, the young will have to pay the money back.”
Both parts of this are of course wrong. Brooks assumes that the federal government would be able to collect the same tax revenue if it didn’t have Medicare as if it did. That is implausible. Medicare is an enormously popular program for which people are willing to tax themselves. It is not likely that if we nixed Medicare that we could raise the same tax revenue and simply use the money for something else. (We would at least have to change the name for the designated Medicare tax.)
It is also important to note that the excessive spending for Medicare is not due to the fact that seniors in the United States are getting such good care, but rather that we pay more than twice as much per person as people in other wealthy countries. If we paid the same as people in other wealthy countries then we would be looking at long-term budget surpluses, not deficits. In this sense it is not a question of transferring money from future earners to give to retirees, it is a question of taking money from future retirees to pay drug companies, doctors, and others in the health care industry.
It is also inaccurate to say “the young will have to pay the money back.” Of course the debt never literally has to be paid back, the government debt has grown in nominal terms almost every year in the last century. Even the interest will be paid from some future earners to other future earners so government debt ends up being a transfer within generations, not between generations.
The piece also includes a couple of other items about a lack of future orientation that are between bizarre and wrong. Brooks tells readers:
“Banks can lend money in two ways. They can lend to fund investments or they can lend to fund real estate purchases and other consumption. In 1982, banks were lending out 80 cents for investments for every $1 they were lending for consumption. By 2011, they lent only 30 cents to fund investments for every $1 of consumption.”
No data source is cited for this statistic, however if Brooks is just referring to bank lending (as opposed to all credit) then the obvious explanation would be the development of the junk bond market. Many mid-sized and even large firms that would have been dependent on bank loans for investment in 1982 (the middle of the recession — a year when housing was hugely depressed) can now borrow directly in capital markets without going to banks. It is not clear what this tells us about the country’s future orientation.
He then adds:
“Increasingly, companies have to spend their money on retirees, not future growth. Last week, for example, Ford announced that it was spending $5 billion to shore up its pension program. That’s an amount nearly equal to Ford’s investments in factories, equipment and innovation.”
This one is a real head-scratcher. Has Brooks missed the plunge in defined benefit pensions over the last three decades? How about the rapid disappearance of employee health care coverage? The trend here seems to be going rapidly in the other direction. Pensions are of course are part of workers’ compensation, just like pay. Companies are supposed to put aside money at the time pension liabilities are accrued, so a properly managed pension fund does not imply a drain on the future.
Of course the country does seem to have shortage of people with proper skills in finance, so many companies do have underfunded pensions. However this has little to do with preferring the present over the future, as opposed to a simple lack of skills in an important sector of the economy.
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