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Article Artículo

Economic Growth

Government

Labor Market Policy Research Reports, March 26 – 30, 2012

Here’s a roundup of the labor market research reports released this past week:


Center for American Progress

Insourcing: How Bringing Back Essential Federal Jobs Can Save Taxpayer Dollars and Improve Services
Pratap Chatterjee

Sharing the Pain and Gain in the Housing Market: How Fannie Mae and Freddie Mac Can Prevent Foreclosures and Protect Taxpayers by Combining Principal Reductions with “Shared Appreciation”
John Griffith and Jordan Eizenga


Center For Economic and Policy Research

Affording Health Care and Education on the Minimum Wage
John Schmitt and Marie-Eve Augier


Center on Budget and Policy Priorities

Draconian Republican Study Committee Budget Would Cut Federal Medicaid Funding Nearly in Half by 2022 Even More Extreme than the Ryan Block Grant
Edwin Park and Matt Broaddus

Cantor Proposal for 20 Percent Business Tax Deduction Would Provide Windfall for Wealthy, Not Create Jobs CBO Rated Similar Approach One of Least Effective Ways to Create Jobs
Chuck Marr

Cooper-LaTourette Budget Significantly to the Right of Simpson-Bowles Plan: Proposes Much Smaller Tax Increases, Smaller Defense Cuts, and Deeper Domestic Cuts than Original Simpson-Bowles
Robert Greenstein

Medicare in the Ryan Budget
Paul N. Van de Water

New Tax Cuts in Ryan Budget Would Give Millionaires $265,000 on Top of Bush Tax Cuts
Chuck Marr

Ryan Medicaid Block Grant Would Cut Medicaid by One-Third by 2022 and More after That
Edwin Park and Matt Broaddus

CEPR and Marie-Eve Augier / March 30, 2012

Article Artículo

Helping Those at the Bottom by Paying Neurosurgeons and Pfizer More

Are you upset about inequality? According to the logic in a Washington Post column by Brookings economist Ron Haskins, we can help remedy the situation by doubling the pay of neurosurgeons to roughly $1 million a year and doubling what we pay to the pharmaceutical industry for drugs each year to $600 billion. 

If you don't understand how increasing the income of rich doctors and highly profitable drug companies helps those at bottom, then you obviously don't understand economics. It's all very simple.

Haskins argues that those of us who are concerned about inequality have ignored the value of government benefits. These include benefits like Medicare and Medicaid, that disproportionately benefit low and middle income people. If we add in the value of these benefits, then Haskins tells us that there has actually been very strong income growth at the middle and bottom of the income ladder over the last three decades.

However the problem in this story is that the value of these benefits is measured by their cost. If, for example, we measured the value of these benefits by imputing the per person costs of health care in Canada, Germany, Denmark or any other wealthy country, then including the value of government benefits would not change the income inequality story at all.

The reason for the difference in health care costs between the U.S. and these other countries is not due to the fact that we get better care. In fact, low and moderate income people get far better care in all of these other countries than in the United States. The reason is simply that we pay providers far more than these other countries do. But, if our measure of the income of the poor includes the payments the government makes to doctors and drug companies on their behalf, the more we pay them, the more rapid the growth of the income of the poor.

So if we want to help the poor, we should just increase Medicare and Medicaid reimbursement rates for doctors and drug companies. Got it?

Dean Baker / March 30, 2012

Article Artículo

Fed Policy: What Does the Washington Post Think It Is Saying?

I can't argue with today's Post editorial on the Fed, primarily because I have no clue what they think they are saying. The Post comes out in favor the Fed's expansionary policy given the continued weakness of the labor market (yeh!). But it then warns:

"Still, these benefits [sustaining growth] come with risks attached. Among the biggest risks is that easy money from the Fed enables banks and firms to postpone necessary restructuring — and for Congress and the White House to postpone getting the federal government’s long-term fiscal situation under control."

Let's look at these separately. In terms of the banks, the Fed free money policy, and previously its special lending facilities, does more than just allow the banks to "postpone" restructuring. It allows them to avoid restructuring and continue to operate with an implicit too big to fail guarantee. 

Citigroup, Goldman Sachs, Morgan Stanley and most of the other big boys would have been bankrupt if the market was left to run its course. Instead the Fed stepped in and shoveled trillions of dollars of below market loans to these banks. This is what is known in other circles as "welfare."

The Post and other media outlets have given us the children's story that we made money on these loans. But this is just silliness. Using the Post's accounting, if the Fed gave me a 30-year mortgage at a 1.0 percent interest rate and I repaid the loan in full by 2042, the Washington Post would say that the government made money on this loan.

The reality is that at a time when the market demanded a huge risk premium to lend money to these banks, the Fed invited them in to borrow as much as they wanted at near zero rates. This both allowed them to get through the crisis and reinforced the idea that these banks carried the implicit "too big to fail" government guarantee.

Dean Baker / March 29, 2012

Article Artículo

The Iron Grip of Accounting Identities

James Kwak responded in Baseline Scenario to some of the points that I raised in the review of the new book he co-authored with Simon Johnson, White House Burning. I want to focus on one issue in particular because it is really central to how we understand the economy.

I argued in my review that the fundamental imbalance in the U.S. economy is the trade deficit. This deficit is in turn caused by the over-valued dollar. The latter is a direct result of the decision of developing countries to accumulate massive amounts of foreign exchange reserves (i.e. dollars) in the wake of the East Asian financial crisis.

Developing countries saw the harsh treatment of the East Asian countries following the crisis and decided that they did not want to be in the same situation. Their protection against this event was the stockpiling of huge amounts of reserves. They acquire the reserves by running trade surpluses, which they use to acquire dollars. The decision of foreign central banks to buy and hold dollars keeps up the value of the dollar against their own currencies. If they didn't buy dollars, the value of the dollar would fall relative to their currencies.

This matters for our trade deficit because the higher valued dollar means that imports are cheaper for us, which leads us to buy more imports. In addition, the high dollar means that our exports are more expensive for people in other countries. Therefore they buy less of our exports. If we import more and export less, then we get a trade deficit.

This matters for the budget deficit story because if the United States runs a trade deficit, then it means that the United States has negative national savings. This is definitional; as a country we are buying more than we are selling.

Dean Baker / March 28, 2012