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Article Artículo

Yes, It's the Monday Before the Election and Robert Samuelson Wants Us to Cut Social Security

Yep, he tells us the real national embarrassment is not having a racist, sexist, xenophobic candidate as a major party presidential nominee. It's not our failure to address global warming so our kids might face a ruined planet. No, Robert Samuelson tells us our real national embarrassment is that we have an aging population and, horror of horrors, this may involve spending more money on Social Security and Medicare. Okay, let's go through his story.

Samuelson tells us:

"In 1990, those 65 and over comprised 12.5?percent of the population; now, according to Census Bureau projections, that share is racing toward 16 percent in 2020 and 19 percent in 2030. That’s one in five Americans. Already, federal spending for older Americans (mainly Social Security, Medicare and nursing-home care under Medicaid) dominates the national budget. It’s crowding out spending on other programs, from defense to parks, and is the chief source of chronic budget deficits.

"Nor is that all. The economy’s slowdown reflects in part the retirement of millions of baby boomers, whose exit from work reduces labor force growth. The generational unfairness is palpable. Younger Americans are seeing more of their taxes diverted to care of the elderly, who often are in better financial shape than the young who are subsidizing them.

"What we need — it was obvious even before the Bill Clinton presidency — is a new social contract between generations, one that acknowledges longer life expectancy (justifying higher eligibility ages for Social Security and Medicare benefits) and greater wealth among millions of older Americans (justifying lower benefits for well-to-do retirees)."

Okay, so we have a rising share of the population over age 65. That is something that happens when a country gets wealthier and medical technology improves. If we take a little longer view, the share of the population over age 65 was 7.4 percent in 1945. It's currently just under 15.0 percent. That means that we have seen a rise in the share of the over age 65 population rise by more than 7.5 percentage points. Apparently in Robert Samuelson world, that rise was okay, but something really really bad will happen when the share of people over age 65 rises another 4.0 percentage points to 19.0 percent.

CEPR / November 07, 2016

Article Artículo

Ross Douthat and the Government Subsidized Life

Ross Douthat devoted his NYT column this morning to how people in the United States and other wealthy countries deal with a world in which they have fewer children. It's mostly devoted to social psychological speculation, which I will leave to others to assess, but I do want to pick up on an economic item that is a central theme.

Douthat tells readers:

"The Obama White House’s 'Life of Julia' ad campaign in 2012 — featuring a woman whose every choice was subsidized by the government from cradle to grave, with a lone child but no larger family or community in sight — seemed to many conservatives like a perfect confirmation of our fears: Here was liberalism explicitly pitching the state as a substitute for kith and kin."

While I don't recall the campaign ad, presumably the subsidies are for items like child care, education, health care, and Social Security. Douthat is making a clear contrast between incomes that people earn in the market, implicitly without the hand of government, and the items that the government gives to people. In his view, and the view of the conservatives he refers to, the former is good and latter in some way bad. This distinction becomes more problematic when we acknowledge that the government shapes the market in ways that enormously impact the ability of people to earn income in the market.

Starting with an example that was in the news last week, the Fed may soon decide to raise interest rates. The purpose of this move is to slow the economy and the rate of job creation. In addition to keeping some people from getting jobs (disproportionately African Americans and Hispanics), a higher rate of unemployment will weaken the bargaining power of workers who do have jobs. In particular, it puts downward pressure on the wages of the workers at the middle and bottom of the wage distribution.

Going in the opposite direction, the government protects the income of doctors from prohibiting foreign doctors from working in the United States unless they have completed a residency program in the United States. As a result of this restriction, doctors in the United States earn twice as much as their counterparts in other wealthy countries like Germany and Canada. This costs the country roughly $100 billion a year in higher medical expenses.(This effectively reduces the wages of all non-doctors, since our money buys less.)

In the same vein, the government grants patent monopolies in prescription drugs. These monopolies allow drug companies to charge prices that are often several thousand percent above the free market price. This protectionism both makes some of those involved in the process of developing and distributing drugs very rich and ends up costing the rest of us a huge amount in higher drug prices. The gap between the patent protected price of drugs and the free market price can easily exceed $350 billion a year.

There are a variety of other mechanisms through which the market has been shaped in recent decades to redistribute income upward. This is the topic of my new book Rigged: How Globalization and the Rules of the Market Economy Were Structured to Redistribute Income Upward (it's free). It is important to recognize how the market was structured to enrich the rich since it undermines the moral distinction that Douthat and his fellow conservatives want to make.

CEPR / November 06, 2016

Article Artículo

New York Times Misrepresents Falling Oil Prices to Push Protectionism to Benefit Rich

The promoters of "free trade" are feeling frustrated these days. Their trade deals are facing large-scale public opposition everywhere. This opposition almost derailed a trade deal between Canada and the European Union. In the United States, both major party candidates are openly opposed to the Trans-Pacific Partnership (TPP).

The NYT recognizes some of the problems in recent trade pacts, but still badly misrepresents the key issues in an editorial on trade. The misrepresentation picks up a recent theme of the selective protectionists (a.k.a. "free traders"). It claims that trade has been falling:

"The total value of American imports and exports fell by more than $200 billion last year; they’ve fallen by an additional $470 billion in the first nine months of this year. Sluggish growth is both a cause and a result of this slowdown."

Numbers fans everywhere know the trick here. As I pointed out yesterday, the reason that the value of U.S. trade fell last year was the drop in the prcie of oil and commodities. The real value of trade rose by $2.3 billion from 2014 to 2015. This is admittedly slow growth, but it is not the same thing as the advertised decline. (These data are available from Bureau of Economic Analysis, National Income and Product Accounts, Table 1.1.6.)

The editorial compounds the error by bringing in data from 2016. It's true the nominal value of trade fell by $163 billion (not the $470 billion advertised) in the first nine months of 2016, but if we adjust for falling prices trade actually rose by $63 billion.

But this aside, it's time to stop honoring the lies by the promoters of trade deals. These deals have nothing to do with free trade. They are designed to redistribute income upward.

CEPR / November 01, 2016