Paul Krugman has some interesting thoughts on the possibility that the U.S. economy might have a serious problem with secular stagnation that has been remedied in large part over the last two decades by bubble generated demand. This is old hat to some of us, but it's great to see Krugman pursuing this line of thought.

There are two points worth adding on the topic. One important component of demand that has been big-time in the negative category in the last 15 years is net exports. This represents a serious failure of the international financial system. The old textbook story is that capital is supposed to flow from slow growing rich countries to fast growing poor countries where it can receive a higher rate of return and assist these countries in their development. 

The textbook story has never fit the data very well (net capital flows have often been in the opposite direction), but the flows from poor to rich have been especially large in the years following the East Asian financial crisis. The harsh treatment by the I.M.F. of the countries in the region (yes, this was the bailout led by the Committee to Save the World) led to a sharp increase in the accumulation of foreign exchange reserves (i.e. dollars) by developing countries. Countries in Latin America, Asia, and Africa suddenly began to accumulate as much reserves as possible with the idea that this would protect them against ever being in the situation of the East Asian countries.

That led to a large rise in the value of the dollar and a big increase in the size of the U.S. trade deficit. The trade deficit in turn led to a big gap in demand that was filled at the end of the 1990s by the stock bubble and in the last decade by the housing bubble. (A trade deficit means that income generated in the United States is being spent in other countries instead of the United States.) There may well be a problem of secular stagnation even if trade were closer to balanced, but the huge expansion of the trade deficit in the last 15 years clearly aggravated the problem considerably.

The other factor that should be kept in mind is that potential GDP or full employment is not exactly a fixed point in space. One of the big factors that determines the potential level of output is the average number of hours worked per worker. In places like Germany, the Netherlands, and France, the average work year has roughly 20 percent fewer hours than in the United States. This means that to produce the same output, these countries would need  20 percent more workers. (That assumes equal productivity per hour, which is pretty close to being the case.) 

Dean Baker
The Hankyoreh (South Korea), September 18, 2013

Dean Baker
Common Dreams, September 23, 2013

Brazilian President Dilma Rousseff cancelled a state visit to Washington last week and made a strong statement yesterday by using her speech at the U.N. General Assembly to condemn the U.S. for its illegal espionage activities in Brazil.  Currently, the U.S. government maintains that NSA information gathering is done for reasons of national security, but Rousseff argued at length that this argument “cannot be sustained” while calling for “a civilian multilateral framework for the governance and use of the Internet.”  President Obama, who spoke directly after her, made no reference to the NSA spy program or Latin America at all, even though it was widely expected that Dilma would bring up these issues. 

When the press reported that Rousseff had cancelled a state visit to Washington last week, many writers contextualized the decision by describing the revelations of NSA espionage in Brazil: from collecting data on millions of private communications, to hacking the networks of oil company Petrobras (majority owned by the state), and even gaining access to Dilma’s personal communications.

Other helpful context for Dilma’s decision would be the ongoing talks between her administration and the U.S. government since the news first broke of NSA activity in Brazil in early July.  Here are highlights of official meetings that show Dilma’s decision to cancel the visit came after repeated, high level communications with U.S. government representatives:

• U.S. Vice President Joseph Biden and Rousseff talk over the phone for 25 minutes, and Biden offers to provide more information and technical details to Brazil, but no specific plans are reported. (7/19) 
• U.S. Ambassador to Brazil Thomas Shannon (now replaced by Liliana Ayalde) meets with officials at the Brazilian Foreign Ministry, where Foreign Minister Figueiredo asks for “a formal written explanation… as soon as possible, this week.” (9/2)
• Obama meets with Rousseff on the sidelines of the G20 economic summit, and afterward the Brazilian president says she wanted specifics on the spying: “I want to know everything they have.  Everything.” The Obama administration agreed to a one-week timeline for a formal response, according to Rousseff. (9/5)
• National Security Advisor Susan Rice meets with Foreign Minister Luiz Alberto Figueiredo, saying that the Obama administration wants to clarify the issue and has ordered a comprehensive review of the NSA. (9/11)

It’s fall in Washington DC, and once again threats of a government shutdown and a U.S. debt default are in the air. Meanwhile, throughout the rest of America, millions of people wake up not knowing how they are going to pay their bills or feed their children.

We expect that you share our frustration with the lack of progress on the many issues facing our country. So, we here at CEPR have decided to take matters into our own hands, and we are asking for your help:

We want to take over.

That’s right; we’re willing to take over the government’s responsibilities. Fund CEPR’s takeover, and we’ll make sure that the country’s economic policies are those that benefit the bulk of the population and not just the elites. We’ll make sure that workers are protected and allowed to organize and that they earn a living wage.  We’ll pass progressive tax laws like the financial transaction tax and we’ll end Too Big to Fail. We’ll definitely protect Social Security and Medicare…we’ll even expand them.

The Organization of American States (OAS) will send electoral monitors to Haiti despite the election having not been scheduled, reports AFP. According to Frederic Bolduc, the OAS Special Representative to Haiti, the observers “intend to arrive several months in advance to help authorities register voters and then count votes.” Bolduc pointed out that setting the date of the election was up to the Haitian government and that the “OAS will not decide on a date.”

Elections, which were supposed to be held in November 2011, have yet to be scheduled as conflicts between the president and parliament over the electoral law continue. The head of the U.N. mission in Haiti, Sandra Honoré, told the U.N. Security Council (PDF) in late August that the “delay in the holding of long-overdue partial senatorial, municipal and local elections is of increasing concern and poses a series of risks to the stabilization process.” If elections are not held by January 2014, the terms of many parliamentarians will end, potentially shutting down an entire branch of Haiti’s government and allowing President Martelly to rule by decree.

On a trip to Washington D.C. last week, Haitian Senator Steven Benoit put the blame for the electoral delays squarely on Martelly. Benoit noted that “after two years of hide and seek” with the electoral reforms, formation of the electoral council and submission of the electoral law, there will not be time to reach an agreement before the terms of parliamentarians come to an end. Noting that Martelly told a crowd the previous week that for the next two years he would “run Haiti as he saw fit,” Benoit warned that “having President Martelly run Haiti without a Congress and without holding elections” would ensure a return to “political instability and turmoil.”

As with previous elections, the international community is footing the bill. A United Nations Development Program (UNDP) project, funded by the U.S., Canada, Brazil, the E.U. and others has already disbursed over $401,000 and has estimated the cost of holding elections to be over $32 million. The UNDP project aims to “strengthen the technical and strategic capabilities” of the Haitian electoral council, but the council itself has come under increasing scrutiny. Last week Benoit accused Martelly of having “done all he could to have a hand-picked electoral council.” According to AFP, the involvement of the OAS “elicited numerous complaints by opposition parties, which feel Haiti should determine its own ability to hold elections.” The reaction of the opposition may be a result of the OAS’s role during Haiti’s last election.

September 24, 2013

September 24, 2013

Dean Baker
Truthout, September 23, 2013
The Huffington Post, September 23, 2013

The NYT's responsibility for Republican efforts to cut food stamps may not be immediately obvious, but on closer examination the truth comes out. Look at the basic story: the Republicans want to cut the budget for food stamps. Their proposed cuts don't amount to much in terms of the entire federal budget but they are likely impose considerable hardship to the people affected. If the Republican cuts go through, between 2-4 million very low income people would lose benefits that average $160 a month.

These cuts are likely to be a serious hardship to the people affected. But what do they mean to the rest of us? The answer is not much. No doubt you heard the New York Times and other media outlets reporting that the Republican cuts would reduce projected federal spending by 0.086 percent over the next decade.

If you don't recall hearing that one you probably are not alone. This number has not been featured very prominently in the news reporting on the proposed cuts. Instead, the New York Times and other news outlets routinely refer to the proposed $40 billion in cuts.

This matters a lot. The reality is no one has a clue what $40 billion in spending means over the next decade. There are probably 5-10 thousand budget wonks with their nose in these numbers who can make sense out of hearing that the Republicans want to cut $40 billion in spending over ten years. For just about everyone else, the NYT and other news outlets are just saying that the Republicans want to cut a REALLY BIG NUMBER from food stamps over the next decade.

This is not a debatable point. Polls consistently show that people have no clue as to the total size of the budget. And they have little idea what are the major spending categories that absorb most of their tax dollars. I have raised this issue with many budget reporters and not one has ever tried to claim that any substantial portion of their readers had a clear idea of what budget numbers meant, especially when expressed over 5-10 year periods.

We even got a wonderful demonstration of this problem when Paul Krugman mistakenly took a 10-year proposed cut in food stamps as being a 1-year proposed cut and made it the basis for a NYT column. How many NYT readers are more knowledgeable about the budget and used to dealing with large numbers than Paul Krugman? If the NYT's reporting on the budget can mislead Paul Krugman what does it do for the more typical reader?

The Washington Post might not be very aggressive when it comes to billionaire too big to fail bankers, hedge and private equity fund swindlers, or pharmaceutical companies exploiting patent monopolies by pushing bad drugs, but when it comes to beating up on people getting $1,150 a month for disability, there is no one tougher. The Post is on the job again today with an editorial warning about the "explosive recent growth" in disability roles. 

The Post conveniently ignores facts and reality in pushing its case. For example, it counters the views of "defenders of the program" with the views of "critics, including a significant number of academic economists." Of course there are a large number of academic economists who are among the defenders of the program, but the Post did not think this point was worth mentioning; it could distract readers.

This sentence continues:

"suggest that the program’s manipulable and inconsistently applied eligibility criteria have enabled millions of people who could work to sign up for benefits instead."

"Millions of people," really? The work linked to in the paper won't give you this number. One careful study that was produced by the University of Michigan a few years ago, identified categories of applicants that it deemed marginally eligible. It found that if this group was denied disability, 28 percent would be working two years later. Since this group accounted for 23 percent of applicants, that would mean 6.4 percent of applicants (28 percent of 23 percent) would be working in two years, if they were denied benefits.

There are currently just under 10 million disability beneficiaries. If we assume that 6.4 percent of these people would be working if they had been denied benefits that comes to 640,000 people. That is considerably short of "millions of people" in places other than the Washington Post opinion pages. Furthermore, the Michigan study found that the share of these marginal refusals who were working four years later fell to 16 percent, so the 640,000 figure is undoubtedly too high based on this analysis.

Of course the other point to keep in mind for those looking to crack down on these freeloaders is that our system will never be perfect. The inappropriate beneficiaries will not identify themselves. Any effort to tighten criteria to ensure that ineligible people don't qualify will inevitably lead to more eligible people wrongly being denied benefits. In other words, the Post's policy could mean that some people with terminal cancer don't get benefits.