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That is what readers of his column will conclude when they see him saying:
“Europe is a different story. The bubble years allowed much of Europe to avoid making the kind of structural changes necessary to put its social welfare system on a sustainable fiscal path and reform its labor and product markets. The euro crisis — which is both a banking crisis and a sovereign debt crisis — has forced Europeans to begin addressing those issues. But the noisy process will take years to complete, if for no other reason than it requires Europeans to accept, at least in the short run, a lower standard of living.”
Of course this is completely wrong. The countries with the well developed welfare states, Germany, Denmark, Sweden, the Netherlands are doing fine. The countries that are in crisis, Spain, Greece, Portugal, Ireland, have the least developed welfare states among the older EU countries. Also, there is nothing about the crisis that requires Europe on the whole to have a lower standard of living. In fact, the best resolution of the crisis involves Germans seeing higher wages and a higher standard of living. While this may imply a modest relative decline in the standard of living of the crisis countries (imports from Germany would cost more), it would lead a greatly improved standard of living from current levels.
That is what readers of his column will conclude when they see him saying:
“Europe is a different story. The bubble years allowed much of Europe to avoid making the kind of structural changes necessary to put its social welfare system on a sustainable fiscal path and reform its labor and product markets. The euro crisis — which is both a banking crisis and a sovereign debt crisis — has forced Europeans to begin addressing those issues. But the noisy process will take years to complete, if for no other reason than it requires Europeans to accept, at least in the short run, a lower standard of living.”
Of course this is completely wrong. The countries with the well developed welfare states, Germany, Denmark, Sweden, the Netherlands are doing fine. The countries that are in crisis, Spain, Greece, Portugal, Ireland, have the least developed welfare states among the older EU countries. Also, there is nothing about the crisis that requires Europe on the whole to have a lower standard of living. In fact, the best resolution of the crisis involves Germans seeing higher wages and a higher standard of living. While this may imply a modest relative decline in the standard of living of the crisis countries (imports from Germany would cost more), it would lead a greatly improved standard of living from current levels.
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This little factoid would have been worth including in a front page Washington Post news article reporting business executives’ expressed concerns about the end of the year budget situation. The article tells readers that the executives warned of dire consequences, including another debt downgrade and higher interest rates on government bonds, if the budget situation is not resolved quickly. An early resolution is more likely to leave the Bush tax cuts for the wealthy in place, since it would be easier politically to extend them before the end of the year than to reinstate them after they expire on January 1.
Since these executives have a large personal stake in how the tax battles are resolved it would have been appropriate to remind readers of that fact. It is possible that this could influence what they say on the topic. The Post would usually make a point of noting much smaller and more indirect conflicts of interest.
This little factoid would have been worth including in a front page Washington Post news article reporting business executives’ expressed concerns about the end of the year budget situation. The article tells readers that the executives warned of dire consequences, including another debt downgrade and higher interest rates on government bonds, if the budget situation is not resolved quickly. An early resolution is more likely to leave the Bush tax cuts for the wealthy in place, since it would be easier politically to extend them before the end of the year than to reinstate them after they expire on January 1.
Since these executives have a large personal stake in how the tax battles are resolved it would have been appropriate to remind readers of that fact. It is possible that this could influence what they say on the topic. The Post would usually make a point of noting much smaller and more indirect conflicts of interest.
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The Washington Post ran an incredibly confusing piece on the ending of the Bush tax cuts which was highly favorable to those wanting to keep the tax breaks for the rich. First, the piece repeatedly uses the term “fiscal cliff,” which implies that there is some ledge that the country will hurtle over at the end of the year. This metaphor is completely wrong. The impact of letting the tax cuts expire on January 1 is in fact minor. There will only be a substantial impact if the higher tax rates are left in place as written through much of the year.
The piece also presents comments from an aide to House Speaker John Boehner about the impact of higher tax rates on jobs without any explanation. Boehner is quoted as saying:
“‘The hard truth, which even the president’s advisers must know, is that raising those tax rates will have a major effect on small businesses and cost hundreds of thousands of jobs,’ said Boehner spokesman Kevin Smith. ‘In this troubled economy, it’s hard to see how anyone in a post-election scenario could be for that.'”
In the middle of a steep recession, any measure that reduces the deficit will cost jobs. That is because it will reduce demand. If anyone wants to see a lower deficit in 2013 (certainly the Post does), then they want to throw people out of work.
This is sort of like pulling the trigger on a gun pointed at someone’s head. Presumably this is not done unless the desire is to see the person dead.
The Post should have reminded readers of this fact, since many may not remember the relationship between deficit reduction in a downturn and jobs. It also would have been worth reminding readers that tax increases on rich people have less impact on jobs than almost any other form of deficit reduction. In other words, if we want to reduce the deficit by some fixed amount in 2013, there is no way that leads to less job loss than raising taxes on rich people.
It would have been helpful to remind readers of this fact, since many may not have not realized that Boehner’s aide was being deceptive.
The Washington Post ran an incredibly confusing piece on the ending of the Bush tax cuts which was highly favorable to those wanting to keep the tax breaks for the rich. First, the piece repeatedly uses the term “fiscal cliff,” which implies that there is some ledge that the country will hurtle over at the end of the year. This metaphor is completely wrong. The impact of letting the tax cuts expire on January 1 is in fact minor. There will only be a substantial impact if the higher tax rates are left in place as written through much of the year.
The piece also presents comments from an aide to House Speaker John Boehner about the impact of higher tax rates on jobs without any explanation. Boehner is quoted as saying:
“‘The hard truth, which even the president’s advisers must know, is that raising those tax rates will have a major effect on small businesses and cost hundreds of thousands of jobs,’ said Boehner spokesman Kevin Smith. ‘In this troubled economy, it’s hard to see how anyone in a post-election scenario could be for that.'”
In the middle of a steep recession, any measure that reduces the deficit will cost jobs. That is because it will reduce demand. If anyone wants to see a lower deficit in 2013 (certainly the Post does), then they want to throw people out of work.
This is sort of like pulling the trigger on a gun pointed at someone’s head. Presumably this is not done unless the desire is to see the person dead.
The Post should have reminded readers of this fact, since many may not remember the relationship between deficit reduction in a downturn and jobs. It also would have been worth reminding readers that tax increases on rich people have less impact on jobs than almost any other form of deficit reduction. In other words, if we want to reduce the deficit by some fixed amount in 2013, there is no way that leads to less job loss than raising taxes on rich people.
It would have been helpful to remind readers of this fact, since many may not have not realized that Boehner’s aide was being deceptive.
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A NYT piece that discussed negotiations between Greece and the “troika” over its budget deficit should have pointed out the risk to Germany and the other core euro zone from a Greek exit from the euro zone. The austerity policies demanded by the troika have led to 25 percent unemployment in Greece. With the economy projected to continue to contract for at least another year, the unemployment rate is almost certain to go higher.
By contrast, if Greece were to leave the euro and re-establish its own currency, it would experience a full-fledged financial crisis and a period of extreme disruption, but its economy would likely then bounce back quickly, as was the case with Argentina in 2002. The troika is undoubtedly concerned that if Greece were to follow this path it would set an example for Spain, which also has 25 percent unemployment, and possibly other crisis countries in the euro zone.
For this reason, the troika will almost certainly back away from demands if the Greek government proves unable to meet them. It does not want to risk a departure from the euro of one of the larger countries.
A NYT piece that discussed negotiations between Greece and the “troika” over its budget deficit should have pointed out the risk to Germany and the other core euro zone from a Greek exit from the euro zone. The austerity policies demanded by the troika have led to 25 percent unemployment in Greece. With the economy projected to continue to contract for at least another year, the unemployment rate is almost certain to go higher.
By contrast, if Greece were to leave the euro and re-establish its own currency, it would experience a full-fledged financial crisis and a period of extreme disruption, but its economy would likely then bounce back quickly, as was the case with Argentina in 2002. The troika is undoubtedly concerned that if Greece were to follow this path it would set an example for Spain, which also has 25 percent unemployment, and possibly other crisis countries in the euro zone.
For this reason, the troika will almost certainly back away from demands if the Greek government proves unable to meet them. It does not want to risk a departure from the euro of one of the larger countries.
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Since the Washington Post decided to attack Mitt Romney for China bashing as part of his presidential race, it seems only appropriate to attack the Post’s own China bashing in the same editorial. While the Post is almost certainly right about Romney’s motives, it’s wrong about the logic of the case.
The United States has a huge trade deficit. China has a huge trade surplus. This is 180 degrees at odds with the textbook story. A fast growing developing country like China is supposed to be borrowing capital from the rest of the world. The idea is that capital is in short supply and can get a high rate of return there. This means that it should have a trade deficit.
The opposite is true with a relatively slow growing wealthy country like the United States. We should be lending capital to developing countries where it will get a higher return. This means that we would have a trade surplus.
Since the story is 180 at odds with theory — China having a large surplus and the U.S. having a large trade deficit — the question is how we correct the imbalance. The textbook story, and also the only plausible story, is that we get the dollar down against the Chinese and other currencies, making U.S. exports cheaper to other countries and imports more expensive for people in the United States. (It is important to remember that we got into this hole primarily because of the strong dollar of the Clinton-Rubin years. Our trade deficit had been relatively modest in the mid-90s until the dollar soared in the wake of the East Asian financial crisis.)
This means that Governor Romney is absolutely right as a matter of policy to be hammering on the over-valued dollar as a major cause of our trade deficit, even if he may be insincere in a commitment to a lower valued dollar. (It is worth noting that the Post’s claim that the real value of the Chinese currency has risen by 37.5 percent in the last two presidential terms is misleading. This is based in large part on differences in the inflation rates in the two countries. The inflation rate in China has been pushed up by higher housing costs and food prices. We actually want to know the change in the prices of traded goods. The gap in the rates of inflation between China and the United States in this area is almost certainly much smaller.)
The Post’s own excursion in China bashing came at the end of the piece where it tells readers:
“China has given the United States many legitimate causes of complaint, from its human rights violations to its incessant intellectual-property theft…”
Actually, it is not clear how much of the transfer of intellectual products in China can be deemed “theft.” Furthermore, those who support free trade should not be interested in pushing this incredibly costly form of protectionism on China. Insofar as the Chinese are forced to pay monopoly prices for items subject to patent and copyright protection it will slow growth and reduce the amount of money that the country has available to buy U.S. goods and services.
It is probably worth noting that many companies that advertise in the Post, most importantly drug companies, have much to gain from increased patent and copyright enforcement in China. Since the Post raises issues of motives in reference to others, it is only appropriate that the same standard be applied to it.
Since the Washington Post decided to attack Mitt Romney for China bashing as part of his presidential race, it seems only appropriate to attack the Post’s own China bashing in the same editorial. While the Post is almost certainly right about Romney’s motives, it’s wrong about the logic of the case.
The United States has a huge trade deficit. China has a huge trade surplus. This is 180 degrees at odds with the textbook story. A fast growing developing country like China is supposed to be borrowing capital from the rest of the world. The idea is that capital is in short supply and can get a high rate of return there. This means that it should have a trade deficit.
The opposite is true with a relatively slow growing wealthy country like the United States. We should be lending capital to developing countries where it will get a higher return. This means that we would have a trade surplus.
Since the story is 180 at odds with theory — China having a large surplus and the U.S. having a large trade deficit — the question is how we correct the imbalance. The textbook story, and also the only plausible story, is that we get the dollar down against the Chinese and other currencies, making U.S. exports cheaper to other countries and imports more expensive for people in the United States. (It is important to remember that we got into this hole primarily because of the strong dollar of the Clinton-Rubin years. Our trade deficit had been relatively modest in the mid-90s until the dollar soared in the wake of the East Asian financial crisis.)
This means that Governor Romney is absolutely right as a matter of policy to be hammering on the over-valued dollar as a major cause of our trade deficit, even if he may be insincere in a commitment to a lower valued dollar. (It is worth noting that the Post’s claim that the real value of the Chinese currency has risen by 37.5 percent in the last two presidential terms is misleading. This is based in large part on differences in the inflation rates in the two countries. The inflation rate in China has been pushed up by higher housing costs and food prices. We actually want to know the change in the prices of traded goods. The gap in the rates of inflation between China and the United States in this area is almost certainly much smaller.)
The Post’s own excursion in China bashing came at the end of the piece where it tells readers:
“China has given the United States many legitimate causes of complaint, from its human rights violations to its incessant intellectual-property theft…”
Actually, it is not clear how much of the transfer of intellectual products in China can be deemed “theft.” Furthermore, those who support free trade should not be interested in pushing this incredibly costly form of protectionism on China. Insofar as the Chinese are forced to pay monopoly prices for items subject to patent and copyright protection it will slow growth and reduce the amount of money that the country has available to buy U.S. goods and services.
It is probably worth noting that many companies that advertise in the Post, most importantly drug companies, have much to gain from increased patent and copyright enforcement in China. Since the Post raises issues of motives in reference to others, it is only appropriate that the same standard be applied to it.
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In his column yesterday, Robert Samuelson expressed his unhappiness that the presidential debate didn’t focus on the budget deficit, his pet peeve. Of course it is understandable that the questioners didn’t want to waste the country’s time on the topic since they probably all knew that the reason that we have large deficits is because the collapse of the housing bubble crashed the economy. If the economy had continued along with 4.5 percent unemployment, the deficits today would be fairly modest, as can be seen from the Congressional Budget Office’s (CBO) projections from January of 2008, before it recognized the severity of the downturn.
At one point Samuelson bizarrely asserts:
“And then there’s the “fiscal cliff” — the roughly $600 billion of spending cuts and tax increases scheduled for early 2013 that, if allowed to take effect, would almost certainly plunge the economy back into recession.”
Actually there are probably not any economists who think that the economy would plunge into recession if there is not a deal in place by the beginning of 2013. The projections for a recession assume that a deal is not reached all year so that we actually see the full amount of tax increases and spending cuts now scheduled.
However the really strange assertion is:
“Nor will large deficits miraculously vanish even if the recovery continues and strengthens.”
Of course this is not consistent with the CBO projections. If the unemployment rate were to quickly fall back to a 4.5-5.0 percent rate, then we would again be looking at deficits in a range of 1.-2.0 percent of GDP, even less if the Bush tax cuts for the wealthy are allowed to expire. If Samuelson has some analysis that shows otherwise, it would be interesting to see.
In his column yesterday, Robert Samuelson expressed his unhappiness that the presidential debate didn’t focus on the budget deficit, his pet peeve. Of course it is understandable that the questioners didn’t want to waste the country’s time on the topic since they probably all knew that the reason that we have large deficits is because the collapse of the housing bubble crashed the economy. If the economy had continued along with 4.5 percent unemployment, the deficits today would be fairly modest, as can be seen from the Congressional Budget Office’s (CBO) projections from January of 2008, before it recognized the severity of the downturn.
At one point Samuelson bizarrely asserts:
“And then there’s the “fiscal cliff” — the roughly $600 billion of spending cuts and tax increases scheduled for early 2013 that, if allowed to take effect, would almost certainly plunge the economy back into recession.”
Actually there are probably not any economists who think that the economy would plunge into recession if there is not a deal in place by the beginning of 2013. The projections for a recession assume that a deal is not reached all year so that we actually see the full amount of tax increases and spending cuts now scheduled.
However the really strange assertion is:
“Nor will large deficits miraculously vanish even if the recovery continues and strengthens.”
Of course this is not consistent with the CBO projections. If the unemployment rate were to quickly fall back to a 4.5-5.0 percent rate, then we would again be looking at deficits in a range of 1.-2.0 percent of GDP, even less if the Bush tax cuts for the wealthy are allowed to expire. If Samuelson has some analysis that shows otherwise, it would be interesting to see.
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