ES EN
Menu Menú

Publications

Publicaciones

Search Publications

Buscar publicaciones

Filters Filtro de búsqueda

to a

clear selection Quitar los filtros

none

Article Artículo

Mark McKinnon Plays "How Many Things Can You Get Wrong About Social Security in One Column"

The hottest sport these days in Washington is seeing how many incorrect or misleading statements about Social Security you can get in one column. All the major media outlets are fully on board, anxious to convey any misinformation that reflects badly on the program. And there are plenty of deep-pocketed funders like Wall Street investment banker Peter Peterson who are happy to finance the effort. Hence we are seeing a plethora of pieces decrying the high-living seniors who are getting fat on their Social Security checks.

The latest contestent to enter the fray is Republican political strategist Mark McKinnon with a column in the Daily Beast. Let's play along.

Mckinnon starts by warning that the United States could end up like Greece or Portugal, abandoned by the credit markets and forced to beg international organizations to buy our debt. Very nice -- this one always gets lot of points with political pundits. Of course it is not true. The United States has its own currency, that means it can never be like Greece or Portugal.

Dean Baker / March 29, 2011

Article Artículo

In Reforming Social Security the Problem is Not How Good the Country Is, the Problem is How Good the Political System Is

Ezra Klein criticizes Social Security supporters for being reluctant to have Social Security reform taken up by Congress at the moment. He argues that Social Security and the retirement system more generally could be restructured to better serve the bulk of the country's workers. Klein notes the fears of Social Security supporters that this could open the door to serious cuts and then responds to these fears, "this country is better than that."

Of course that is true, but also irrelevant. Social Security enjoys overwhelming support from the public. Polls repeatedly show that people across the political spectrum strongly support the program and would even be willing to pay higher taxes to protect the program, but the public as a whole will not directly decide the program's fate.

Congress and the president will decide the future of the program. These politicians live in a world where a willingness to cut Social Security is routinely referred to as a sign of seriousness. Those who do not support cuts are taunted as being unrealistic and weak. Politicians who want to protect the program can expect much less campaign funding from business groups and ridicule from the media.

Dean Baker / March 29, 2011

Article Artículo

OCHA Bulletin Highlights Massive Shortcomings in Relief Efforts
The UN Office for the Coordination of Humanitarian Affairs’ (OCHA) latest “Humanitarian Bulletin” provides some insight into just how much the relief efforts have struggled to provide results over the last year. Despite grandiose aid pledges, complete wit

CEPR / March 28, 2011

Article Artículo

Robert Samuelson's Troubled TARP Arithmetic

We know that arithmetic is not the strong suit of the Washington Post and Robert Samuelson drives this point home again today with his discussion of the TARP. Samuelson tells us that TARP is now projected to cost just $19 billion and that the final cost may actually be lower. He also tells us that the alternative to TARP, bank nationalization would have been far more costly. And, he said that without TARP the unemployment rate "would be 11 percent or 14 percent; it certainly wouldn’t be 8.9 percent."

Okay, let's take these in turn. First, the idea that the TARP cost almost nothing is based on some very shoddy accounting. Samuelson apparently does not understand the idea of money carrying an opportunity cost.

Suppose the government lent me $1 trillion for 10 years at 1 percent annual interest. In the Robert Samuelson world, the government is earning a $100 billion profit on this investment ($10 billion a year for 10 years). Economists familiar with opportunity costs would instead see this as a huge loss to the government, since it is giving me an enormous loan at an interest rate that is several percentage points below the market rate.

We saw how this worked with the TARP when Warren Buffett reported earning twice the money on his investment in Goldman Sachs which was half of the size of the investment from Treasury. Buffett got the market rate of return on his investment, the difference was a subsidy from taxpayers to the shareholders and executives of Goldman. The same story was true with the other TARP loans, as well as the even larger amount of money lent through the Fed as well as the guarantees provided by the FDIC.

Dean Baker / March 28, 2011

Article Artículo

Greece vs. Zimbabwe: More on Krugman and Deficits

Paul Krugman added another post on the potential impact of large deficits on the U.S. economy in which he argues that it doesn't matter that the U.S. can print its own currency; it still faces the same constraints from financial markets. I would argue that it matters a great deal for two reasons that I laid out in my previous post.

The first reason is that at any point in time the Fed would have the option to intervene in bond markets and buy up debt, if private investors were demanding very high interest rates. This is important because the decision by the Fed to not buy debt would always be a policy choice, not an economic fact.

There is a popular mythology in economic policy circles that in 1979 there was no alternative to putting Paul Volcker in as chair of the Federal Reserve Board to really tighten the screws and get inflation under control. At the time inflation was rising and the dollar was falling. Volcker sent rates through the roof, giving us the recessions of 1980 (destroying Carter's re-election chances) and then 1981-82. The latter recession was at the time the worst of the post-war era.

Volcker is widely touted for making the tough call to throw millions of people out of work. (Somehow rich and powerful people are always credited with being "tough" when they inflict pain on ordinary workers and the poor. It seems that if they were really tough they would be inflicting pain on the rich.) Arguably Volcker made the right call even though it did impose enormous costs on the country.

Dean Baker / March 27, 2011

Article Artículo

Why is Gregory Mankiw's Hypothetical President Such an Ardent Protectionist?

This is what readers of his column presenting a hypothetical presidential address to the country in 2026 must be wondering. In this speech, Mr. Mankiw's president explains to the country how the rising cost of Social Security, Medicare and Medicaid let to unsustainable deficits. Of course Mr. Mankiw's president knows that the real story is the explosive growth of the costs of Medicare and Medicaid. These were in turn driven by the soaring cost of private sector health care. If per person costs in the United States were the same as in other wealthy countries then the United States would be looking at a budget surplus, not a deficit.

Given the basic facts, it is hard to understand why Mankiw's president did not propose a system that allowed the United States to take advantage of trade in medical services by letting Medicare beneficiaries buy into the more efficient health care systems in other countries. The tens of thousands of dollars in annual saving could be split between the beneficiaries, the host government and the U.S. government. The total savings to the U.S. government would reach hundreds of billions of dollars each year.

If Mankiw's president were not such a protectionist then surely she would have pushed for such a policy long before this speech. Opening to trade certainly seems preferable to cutting off health insurance to middle income beneficiaries, as Mankiw's president proposed.

Dean Baker / March 26, 2011

Article Artículo

Krugman Is Wrong: The United States Could Not End Up Like Greece

It does not happen often, but it does happen; I have to disagree with Paul Krugman this morning. In an otherwise excellent column criticizing the drive to austerity in the United States and elsewhere, Krugman comments:

"But couldn’t America still end up like Greece? Yes, of course. If investors decide that we’re a banana republic whose politicians can’t or won’t come to grips with long-term problems, they will indeed stop buying our debt."

Actually this is not right for the simple reason that the United States has its own currency. This is important because even in the worst case scenario, where the deficit in United States spirals out of control, the crisis would not take the form of the crisis in Greece.

Greece is like the state of Ohio. If Ohio has to borrow, it has no choice but to persuade investors to buy its debt. Unless Greece leaves the euro (an option that it probably should be considering, at least to improve its bargaining position), it must pay the rate of interest demanded by private investors or meet the conditions imposed by the European Union/IMF as part of a bailout.

However, because the United States has its own currency it would always have the option to buy its own debt. The Federal Reserve Board could in principle buy an unlimited amount of debt simply by printing more money. This could lead to a serious problem with inflation, but it would not put us in the Greek situation of having to go hat in hand before the bond vigilantes.

Dean Baker / March 25, 2011

Article Artículo

The Washington Post Has Not Heard of the Social Security Trust Fund

This appears to be the case, since the Post featured an article, arguing that Social Security benefits should be cut, that made no reference to the the trust fund. The article tells readers:

"Social Security is the single largest federal program, dispensing about $700 billion last year to nearly 60 million people, the vast majority of them retirees. Since the program’s creation in 1935, the cost of Social Security benefits has been entirely covered by payroll taxes paid by current workers. This year, however, payroll tax revenues are projected to fall $45 billion short of covering benefits, and the problem is projected to grow as the number of retirees balloons compared with the number of working adults."

Actually, there have been prior years when current taxes did not cover benefits, but more importantly the program quite deliberately built up a surplus of more than $2.6 trillion, which is held in U.S. government bonds. It is drawing on the interest from these bonds in 2011. It will eventually rely on the principle on these bonds, which will be sufficient, together with current taxes, to cover all benefits through the year 2037.

Dean Baker / March 25, 2011