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Article Artículo

Joe Scarborough Carries His Deficit Rope-a-Dope to the Next Level (see addendum)

Joe Scarborough is apparently feeling emboldened by his exchange with Paul Krugman on the Charlie Rose show and is doubling down on his confused anti-deficit tirades. He is back with an oped in the Post, co-authored with Jeffrey Sachs, who should know better.

The piece is a cornucopia of confusion, beginning with the first sentence:

"Dick Cheney and Paul Krugman have declared from opposite sides of the ideological divide that deficits don’t matter, but they simply have it wrong."

I am not in the defense of Paul Krugman business, but surely Jeffrey Sachs knows that Paul Krugman does not argue that deficits do not matter as a general proposition. What Krugman has argued very vociferously is that deficits do not matter in an economy that is operating far below its potential, as is the case with the United States today. The Congressional Budget Office (CBO) projects that the economy's output will be more than 6 percent (@ $1 trillion) below potential this year. Projected 2013 output is almost 10 percent below the real level of output that CBO had projected in 2008 before it recognized the impact of the collapse of the housing bubble.

In a period of widespread unemployment and excess capacity, like the present, deficits cannot have the negative effect that they would if the economy were near full employment. In an economy near full employment, the argument would be that deficits push up interest rates. Higher interest rates will have the effect of reducing investment. They will also tend to put upward pressure on the dollar. A higher valued dollar will make imports cheaper, causing us to buy more from abroad. It will also make our exports more expensive, leading us to sell less to foreigners. The result is an increase in our trade deficit.

Dean Baker / March 08, 2013

Article Artículo

Latin America and the Caribbean

Venezuela

World

Venezuelan Economic and Social Performance Under Hugo Chávez, in Graphs

On Tuesday, Venezuelan president Hugo Chávez passed away after 14 years in office. Below is a series of graphs that illustrate the economic and social changes that have taken place in Venezuela during this time period.

1. Growth (Average Annual Percent)
GDP PerCap
Source: Banco Central de Venezuela

This graph shows overall GDP growth as well as per-capita growth in the pre-Chávez (1986-1999) era and the Chávez presidency.

From 1999-2003, the government did not control the state oil company; in fact, it was controlled by his opponents, who used it to try to overthrow the government, including the devastating oil strike of 2002--2003.  For that reason, a better measure of economic growth under the Chávez government would start after it got control over the state oil company, and therefore the economy.

Above you can see this growth both measured from 2004, and for the 1999-2012 period. We use 2004 because to start with 2003, a depressed year due to the oil strike, would exaggerate GDP growth during this period; by 2004, the economy had caught up with its pre-strike level of output. Growth after the government got control of the state oil company was much faster.  

2. Public vs. Private Growth – 1999-2012 (Average Annual Percent)
Private Public
Source: Banco Central de Venezuela

This graph shows the growth of the private sector versus the public sector during the Chávez years.

3. Inflation: Pre-Chávez vs. Chávez Years
inflation
Source: Banco Central de Venezuela

Inflation in Venezuela, consumer price index.

4. Unemployment Rate: Before and After Oil Strike
unemployment
Source: Banco Central de Venezuela, INEC

After the oil strike (and the deep recession that it caused) ended in 2003, unemployment dropped drastically, following many years of increases before Chávez was elected. In 1999, when Chávez took office, unemployment was 14.5 percent; for 2011 it was 7.8 percent.

Jake Johnston and Sara Kozameh / March 07, 2013

Article Artículo

Government

Health and Social Programs

Let’s Not Make a Deal

With news of President Obama's efforts to make some Republican BFFs, there are reports that he's trying to make a deal by yet again offering to cut Social Security and other benefits, while at the same time raising income taxes on almost everyone.  

This would be done by changing an official measure of inflation to a new index, called the Chained CPI.  As CEPR has shown, this change would lead to a painful cut in Social Security benefits and a stealth tax hike, by slowing down annual increases in Social Security and other benefits – including those for veterans, the disabled, and low-income children and their families – as well as income tax brackets. (That would lead to incomes jumping to higher brackets faster, or in other words, tax increases.)

In fact, as Howard Gleckman at the Tax Policy Center recently noted, the Congressional Budget Office has estimated that moving to the Chained CPI "would raise taxes as much as it would cut spending."

CEPR / March 07, 2013

Article Artículo

Latin America and the Caribbean

U.S. and Canada Isolated as Latin American Leaders Acknowledge Chávez’s Regional Leadership

Yesterday afternoon Venezuelan President Hugo Chávez passed away, after a long battle with cancer. The announcement by Vice President Nicolás Maduro came just minutes after Chávez’s death and elicited an immediate wave of obituary pieces by pundits who described Chávez as “divisive”, “authoritarian”, “antagonistic” and “anti-American”, many of them eager to rush the “transition” in the hopes that Chávez’s political project would soon fall apart. 

In stark contrast with these predictable characterizations and demonization of Chávez in the major media is the response that Chávez’s death has elicited from his peers, fellow presidents from throughout the Americas. Tributes, messages of solidarity and heartfelt condolences came in from Central and South America, reaffirming support for the ideals of regional unity and independence promoted by Hugo Chávez during his 14 years as president of Venezuela. Very few media outlets noted the outpouring of sympathy from Latin American leaders.

“He is more alive than ever, and will keep being the inspiration for all people fighting for liberation,” were the words of president of Bolivia, Evo Morales.  With his voice cracking and struggling to speak, Morales said that he was “hurt, devastated,” by the death of his “compañero and brother.” And repeatedly referred to the liberation of South America forged by Chávez saying that, “the best way to remember him is with unity, unity.”

José Mujica, President of Uruguay, expressed the profound pain that Chávez’s death caused him:

“Death is always felt, but when it is the death of a great fighter, one that I once defined as the most generous governor that I have ever met, the pain is on another dimension… Its magnitude is bigger than the loss.”

CEPR and Sara Kozameh / March 06, 2013

Article Artículo

Has NPR Joined Peter Peterson's Crusade Against Social Security and Medicare?

The most striking feature of the U.S. economy over the last three decades has been the upward redistribution of income. The top 1.0 percent of households has managed to pocket the vast majority of gains over this period. That is a sharp contrast with the three decades immediately following World War II when the benefits of much more rapid growth were broadly shared.

This pattern of growth might lead people to question the policies that have led to this upward redistribution (e.g. trade policy, labor policy, monetary policy, and anti-trust policy). In order to prevent such questioning and to further the process of upward redistribution many wealthy people have sought to focus public attention on programs that benefit the middle class and/or poor.

Peter Peterson, the Wall Street investment banker, has been most visible in this effort, committing over $1 billion of his fortune for this purpose. Recently he enlisted a group of CEOs in his organization, Fix the Debt, which quite explicitly hopes to divert concerns over income inequality into concerns over generational inequality. It argues that programs like Social Security and Medicare, whose direct beneficiaries are disproportionately elderly, are taking resources from the young.

It is easy to show the absurdity of this position. The amount of money that the young stand to lose from the upward redistribution of income is an order of magnitude larger than whatever hit to their after-tax income they might face due to the continuing drop in the ratio of workers to retirees. Also, older people generally have families. This means that when we cut the Social Security or Medicare benefits of middle and lower income beneficiaries, we are often creating a gap that will be filled from the income of their children.

Nonetheless, when you have a billion dollars to throw around, you will have plenty of people willing to argue absurd positions. Therefore, it is not surprising to see the Fix the Debt crew and various other Peterson derivative organizations pushing the line about generational conflict, but what is NPR's excuse?

Dean Baker / March 06, 2013

Article Artículo

Latin America and the Caribbean

Venezuela

World

Will the U.S. Government, Media Seek to Improve Relations with Venezuela?

Venezuelan Vice President Nicolas Maduro’s announced today that President Hugo Chávez had died at 4:25pm. According to Venezuela’s constitution [PDF], new presidential elections are supposed to be held within 30 days.

The news could present an opportunity for an improvement in U.S.-Venezuelan relations, but that is unlikely. Earlier in the day, Maduro announced that the Venezuelan government would expel the U.S. military attaché for unsanctioned meetings with certain Venezuelan military officers. While this is of course a significant development in U.S.-Venezuela relations that marks yet further deterioration, unfortunately it seems safe to say that most U.S. media outlets will not provide the crucial context necessary in order to understand current relations and why they are so tense.

Maduro mentioned the April 2002 coup d’etat in his press conference today. Declassified C.I.A. and other government documents reveal the U.S. role in that coup against Hugo Chávez. As Scott Wilson, former foreign editor at the Washington Post has explained:

Yes, the United States was hosting people involved in the coup before it happened. There was involvement of U.S.-sponsored NGOs in training some of the people that were involved in the coup. And in the immediate aftermath of the coup, the United States government said that it was a resignation, not a coup, effectively recognizing the government that took office very briefly until President Chavez returned.

I think that there was U.S. involvement, yes.

(Video clip here. This information has however never been reported this fully in the pages of the Washington Post itself.)

CEPR / March 06, 2013

Article Artículo

Another Inspector General Audit, Another Failing Grade for USAID in Haiti

The U.S. Agency for International Development Inspector General (IG) last week released an audit of a program to provide loans to businesses in Haiti (available here). The audit is just the latest report from the IG to find significant problems with USAID’s programs in Haiti, following previous findings regarding cash-for-work programs, shelter provision, food aid and USAID’s largest contractor, Chemonics. The Associated Press’ Trenton Daniel reports that:

An audit of a U.S. Agency for International Department program that aimed to boost Haiti's economy by providing loans to businesses has found that the program failed to award loans to intended targets, train workers and keep accurate records.

The aim of the audit released in late February by USAID's Office of the Inspector General was to see whether a USAID loan program was indeed introducing lending practices to overlooked areas and borrowers, particularly in the areas of agriculture, construction, tourism, handicrafts and waste management. Most of the loans were supposed to go toward women, first-time borrowers and small- and medium-sized enterprises.

The loan program provided some $37.5 million in guarantees, of which just over $19 million in guarantees have been extended. According to publicly available data, only about a quarter went to woman-owned businesses, less than 30 percent went to first-time borrowers, and 75 percent were concentrated in the West department, though these numbers likely overstate the reality on the ground. In addition to many other problems, the audit found that “the key monitoring data was outdated, incomplete, or inaccurate,” for example, information on whether the recipient was a first-time borrower was “recorded incorrectly 41 percent of the time.”

The focus of the audit, Daniel reports, was the four largest of the seven guarantees, “worth $31.5 million,” of the $37.5 million total. Of these Daniel notes that two were made after the 2010 earthquake:

They were a Haitian bank named Sogebank, a Haitian development finance institution named Sofihdes that USAID helped create in 1983 and an agriculture-focused outfit named Le Levier Federation.

The audit found that few women and first-time borrowers received loans and lenders didn't make much effort to work with them.

And while the loans were intended to target “development corridors,” Daniel notes,

Instead they stayed in the Port-au-Prince area.

Ninety percent of Sogebank's loans were confined to the capital and the bank didn't give loans to other parts of the country. Some 81 percent of the Sofihdes loans were in Haiti's capital.

Jake Johnston / March 05, 2013