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Article Artículo

Affordable Care Act

Senator Warren’s Answer on Taxes and Medicare for All is Exactly Right

When I first saw Senator Warren refuse to acknowledge that Medicare for All will mean higher taxes, I admired her political skills, but as an economist, I was annoyed at her evasion of an obvious truth. However, on further thought, I realize that she is exactly right and is doing a public service with her simple insistence that costs for most people will go down.

It is true that many people hate taxes and find the idea that they would ever have to pay more for taxes for anything repugnant. But that group is far from a majority of the electorate. Most people approach their tax bill as any rational person would. They want to know what they are getting for their money.

This is why Warren is giving the right answer even though it is angering reporters and political pundits. She is talking about what actually matters to most voters; what will they get for their money?

The reporters are determined to make this a “she will raise your taxes story.” This is an absurd narrowing of the issue. There is no reason that Warren should cooperate with their silly game. She is determined to talk about the substance of the issue, whether or not the reporters want to hear it.

For a larger context, consider how the budget is reported. Reporters routinely highlight the budget deficit and the accumulated debt, as though this is the most important feature of the budget. It is at least implicit in nearly all reporting that the country would be better off with a lower budget deficit.

This is also indicated in their choice of sources. An incredibly high percentage of budget stories in leading news outlets (i.e. the New York Times, Washington Post, and National Public Radio) feature comments from Committee for a Responsible Federal Budget, an organization committed to lower deficits and debt.   

News stories on the budget almost never present the countervailing view, which is endorsed by a growing number of economists, that the budget deficit has generally been too small in the years following the Great Recession. The result has been that growth has been slower than it otherwise would have been, causing workers to be needlessly unemployed.

CEPR / October 25, 2019

Article Artículo

Celebrating Twenty Years of the Center for Economic and Policy Research

Next week we will be celebrating the 20th anniversary of the founding of the Center for Economic and Policy Research (October 29th to be precise). I’m going to take this opportunity to point out how much economic debate has shifted over the last two decades, and also do a bit of boasting.

When Mark Weisbrot and I started CEPR at the end of 1999, it was the heyday of neoliberalism. Bill Clinton had won reelection in 1996, assuring us that the era of big government was over. Two big agenda items from his first term were the passage of NAFTA and welfare reform, which, as he put it, “ended welfare as we know it.” In international economics, the Washington Consensus reigned supreme, with privatization and austerity being pushed pretty much everywhere in the developing world.

Mark and I felt that the debate on economic policies had become overly narrow, and we thought that a small dynamic think tank, without major institutional constraints, could make a difference.

One of the first issues that we weighed in on was Social Security. At the time, the conventional wisdom, even among Democrats, was that Social Security was in crisis and that benefits had to be cut. Our book, Social Security: The Phony Crisis, came out just as CEPR was launching. Two decades later, not only have benefits not been cut, but the centrist position in the Democratic Party has shifted to benefits should be raised.

We also had pushed for full employment policies. In two books, Jared Bernstein and I argued that the benefits from low levels of unemployment to workers at the middle and bottom of the pay ladder were enormous. We also argued that economists had underestimated the economy’s ability to maintain low levels of unemployment without spiraling inflation. Today, as the unemployment rate sits at 3.5 percent, Jerome Powell, the chair of the Federal Reserve Board, has largely adopted our position.

CEPR / October 21, 2019

Article Artículo

Trump Declares Victory in China Trade War

(This post originally appeared on my Patreon page.)

Back in the late 1960s, when it was clear that the United States was losing in Vietnam, Vermont Senator George Aiken came up with the plan to declare victory and leave. It seems that Donald Trump has stolen the senator’s playbook. 

While we don’t know much of the details of Trump’s partial deal with China, it seems almost certain that he has not won most of his demands. According to press accounts, China will commit to buy a large amount of U.S. agricultural products. This is a highly visible, but largely pointless victory for Trump.

All the major agricultural commodities, such as wheat, corn, soybeans, and beef, sell on massive world markets. If China commits to buying some amount from U.S. producers, for the most part, it will come at the expense of producers from other countries. It will not be an increase in world demand. This means that the displaced producers will be dumping their now surplus commodities on world markets, leaving the market price received by U.S. farmers little changed. 

Anyhow, it was hardly a surprise to some of us that Trump would go the declare victory and leave route. My colleague at the Center for Economic and Policy Research, Mark Weisbrot, made exactly this prediction a couple of weeks ago, as did I, a few days earlier. 

This outcome was easy to see. Trump could not care less about U.S.-China trade policy. He does care about not looking weak and he very much wants to be re-elected. The obvious answer is to say that he won. It doesn’t matter that he may have gotten almost nothing of what he demanded. His followers will believe him and when the media raise questions after seeing the deal, we all know the Trump response: FAKE NEWS.

CEPR / October 18, 2019

Article Artículo

Argentina

Latin America and the Caribbean

World

Congressional Briefing: What’s Next for Argentina?

The economic crisis in Argentina continues to intensify, with high inflation, rising poverty, and decreasing investor confidence. The implementation of a record $57 billion IMF bailout program, rather than alleviating Argentina’s economic woes, has seen poverty and unemployment rise, and a surge in debt levels. 

Argentine political sentiment was tested in August when voters went to the primary polls and delivered a decisive defeat to President Mauricio Macri and his ruling coalition. With a nearly 16-point lead, Alberto Fernández and his running mate, former president Cristina Fernández de Kirchner, are in a strong position to win the general presidential election on October 27. Their broad-based, progressive coalition is also poised to capture the legislature and key governorships, significantly reshaping Argentina’s political terrain.

In light of these developments, and Argentina’s uncertain future, on Tuesday, September 24, three economists, who have been closely following political and economic developments in Argentina, presented their analysis to congressional staffers and civil society representatives at the Longworth House Office Building in Washington, DC. 

CEPR and Cavan Kharrazian / October 14, 2019

Article Artículo

Financial Transaction Tax

The Economics and Politics of Financial Transactions Taxes and Wealth Taxes

(This piece first appeared on my Patreon page.)

Last month, the Washington Post reported that Joe Biden is considering including a financial transactions tax (FTT) as part of his campaign for the Democratic nomination. For those of us who have long advocated such a tax, this is very good news.

On this issue, Bernie Sanders has taken the lead among presidential candidates, including an FTT as part of his plan for free college tuition free. Several other candidates also support an FTT, but if the Democratic Party’s leading centrist candidate endorses the tax, it would mark a new degree of acceptance within the mainstream of political debate.

It may be somewhat surprising, but Senator Warren is not among those supporting an FTT. This is certainly not due to a reluctance to challenge the interests of the wealthy. Warren has proposed a wide variety of measures that would directly challenge the interests of the rich and powerful.

The most ambitious item on this agenda is a wealth tax. Her tax would tax wealth above $50 million at the rate of 2.0 percent a year and wealth above $1 billion at the rate of 3.0 percent a year. (Sanders has an even larger wealth tax.) While there are good reasons for wanting to tax the very rich, an FTT is almost certainly a better economic policy and would have much better political prospects.  

We can see the economics of an FTT are superior when we consider the motivation for taxation by the federal government. As the proponents of Modern Monetary Theory remind us, the federal government doesn’t need revenue to spend, it prints money. The purpose of taxation by the federal government is to reduce consumption, so as to create the economic space for spending. The argument is that if the government spent a large amount of money, and didn’t have any taxes, it is likely to create too much demand in the economy, thereby generating inflation.

To see this point, imagine that the federal government was to spend another $1 trillion next year on Green New Deal policies (a bit more than 20 percent of current federal spending), such as clean energy and mass transit subsidies. If there were no increase in taxes, we would expect to see a huge surge in demand in the economy, likely leading to inflation. (Assume that the Federal Reserve Board simply prints more money so that interest rates are little changed.)

Now suppose we had another big Republican-style tax cut where we handed $1 trillion annually to the very richest people in the country. Also assume that we have no offsetting reduction in spending or increase in other taxes.

In this case, we almost certainly don’t have to worry about inflation. Jeff Bezos, Bill Gates, and other multi-billionaires already have pretty much all the money they can possibly spend. This government handout will fatten their stock portfolios but will have little effect on demand in the economy. And for that reason it is not likely to lead to inflation.

CEPR / October 10, 2019