Beat the Press

Context on Jobs Bill

Congress is debating a jobs bill that is expected to cost around $85 billion. It would be helpful if reporters would put this number in some context . This spending would most take place over the next year and a half. GDP over that period will be approximately $20 trillion, so the projected spending in the bill would be a bit more than 0.4 percent of GDP. The government is projected to spend more than $5 trillion, so the spending would be equal to approximately 1.6 percent of total spending. Given the limited size of this bill, it is likely to have limited impact on employment and the economy. --Dean Baker

Jingoism and the Budget Deficit: Using Any Tactic to Advance the Budget Cutting Agenda

The deficit hawks apparently believe that their case is so weak that they must resort to crass jingoism to push their agenda. NBC apparently intends to run a piece on the evening news on Tuesday that talks about the portion of the government debt that is owned foreigners, highlighting the role of China. This is incredibly dishonest. The extent to which foreigners hold U.S. assets is determined by the trade deficit, not the budget deficit. (Actually, the causation largely goes the other way. The decision of foreign governments and/or investors to buy dollar assets raises the value of the dollar, leading to a larger trade deficit.) Insofar as there is an issue of U.S. indebtedness, it is the holding of U.S. assets in general by foreigners. This represents claims against future U.S. output that will be paid out to foreigners rather than being available for domestic consumption. Whether foreigners hold shares of General Electric and Microsoft or U.S. government bonds makes no difference,...

Social Security Benefits Will Be Paid, It is the Law

Allan Sloan told listeners to Marketplace radio this morning that future retirees should be worried about their Social Security benefits because the program is now paying out more in benefits than it collects in taxes. In fact, the program has accumulated more than $2.5 trillion on government bonds in its trust fund. The Congressional Budget Office projects that this fund will be sufficient to pay all scheduled benefits through the year 2044. Even after that date, if nothing is ever done to change the program, the projections still show that it will be able to pay close to 80 percent of scheduled benefits. This will still provide future retirees with a benefit that is considerably larger than what current retirees receive. All of these benefits will be paid under current law. Congress would have to vote to overhaul the program to prevent the payment of benefits. --Dean Baker

Post Makes Things Up In Pushing "Free Trade" Deals, Again

The Washington Post ran another appeal for congressional passage of trade agreements negotiated with South Korea and Colombia. It refers to these deals as "free trade" agreements even though an important part of both deals involves increasing protectionist barriers in the form of patent and copyright protection. This increased protection will raise costs and lead to increased economic distortions. The Post has a long history of making things up to promote trade agreements. For example, a 2007 editorial promoting NAFTA told readers that Mexico's GDP had quadrupled from 1988 to 2007. The actual increase over this period was 83 percent. The Post never printed a correction of this grossly exaggerated growth figure. (NAFTA took effect in 1994, so it not clear why the paper chose 1988 as the beginning year to assess NAFTA's impact.) --Dean Baker

Robert Samuelson Doesn't Know About the Social Security Tax

I suppose that it is hard to get information about the federal budget way out in the outskirts of downtown Washington. This no doubt explains why Robert Samuelson doesn't seem to know about the Social Security tax. In fact, he doesn't seem to know much about the federal budget at all. Samuelson complains that the government: "the budget is mainly a vehicle for transferring income to retirees from workers, who pay most taxes." This complaint is based on the portion of the budget that goes to funding programs that largely support retirees, specifically Social Security, Medicare, and Medicaid. Of course the reason that much of government spending goes to support retirees is that a large portion of tax revenues is collected in taxes designated for this purposes. In fact, almost 40 percent of government revenue currently comes from these taxes. People who know about the Social Security and Medicare taxes are not surprised that a large portion of government spending goes to support these...

Defense Spending Has Been Growing More Rapidly Than Social Security

The NYT and every one else keeps saying that Social Security is one of the three most rapidly growing items in the budget. This is not true. Defense spending grew more rapidly over the last decade. We spent $655.8 billion on defense in 2009 more than double the $306.1 billion spent in 2001. $By comparison, Social Security spending rose by just over 50 percent during these years from $429.4 billion in 2001 to $677.7 billion last year. If we're looking forward, interest spending is projected to grow more rapidly. So it is simply inaccurate to list Social Security among the areas of most rapid spending growth in the budget. Of course, in discussing Social Security spending serious reporters would point out that it is financed by a dedicated tax. Since payments are projected to be fully covered by this tax and the interest on the bonds held by the Social Security trust fund, cutting benefits would effectively amount to a default on the bonds held by the trust fund. Of course, if the U.S...

The Deficit Story: Clinton's Surpluses Were Not a Model

The NYT argues for the need to address the deficit in the near future. Given the dominance of this debate by shrill deficit hawks, it would have been more helpful if the NYT had focused on the no reason to address the deficit now point, and emphasized the need for more stimulus as a way to put our children's parents back to work so that our children do not have to experience extended period of deprivation in their childhood. The NYT piece also presents some misleading mythology. It notes that the last Clinton budgets had surpluses and that he left office with large surpluses projected long into the future. This is a cute story, but the reality is that these surpluses were not sustainable. The economy in the last Clinton years was being driven by a stock bubble. It was inevitable that the bubble would burst, as it did in the years 2000-2002. This through the economy into a serious downturn. (The official recession was short, but we did not start creating jobs again until the fall of...

Goldman Honcho Gets a Bonus of "Only" $9 Million

The NYT reported that Lloyd Blankfein, the man who engineered the government's bailout of Goldman Sach's, will get a bonus of "only" $9 million for 2009. The use of the word "only" in the headline of this piece displays questionable judgment. Without the help of tax dollars from bus drivers and school teachers, Goldman Sachs would have collapsed in 2008 and Mr. Blankfein might well be on an unemployment line right now. In short Mr. Blankfein took his company to the edge of bankruptcy (and caused enormous damage to the economy in the process). He was subsequently rescued by his former colleagues who occupied top positions in the government. "Only" might not be an appropriate word to describe his $9 million bonus. --Dean Baker

World Stock Prices Plunge Following Bernanke's Reappointment

I haven't seen that headline. Maybe we should ask why. If stocks were following their current course and Bernanke had not been approved by the Senate, there would have been no shortage of people willing to blame his rejection for the downturn. In reality of course, no one can really explain day to day movements in the stock markets, people are just guessing. The millions of independent actors that cause these movements don't offer their opinions, they just buy and sell. Only a fool would try to make policy based on these movements and only a dishonest political hack would use them as a basis for supporting or opposing specific policies. --Dean Baker

NPR Sings the Praises of Small Business

NPR did a propaganda piece on small businesses on Morning Edition today, featuring an uncritical interview with the Karen Mills, the head of the Small Business Administration (SBA). There are many good things that one can say about small businesses. They are responsible for the overwhelming number of new jobs in the economy, they are a source of innovation, they can be an important source of upward mobility. However, small businesses are also responsible for the overwhelming majority of job losses in the economy. (Serious economists would talk about net job creation -- jobs created minus jobs lost -- and by this measure small business does no better than big business.) Small businesses pay their workers less on average than large businesses. They are less likely to provide workers with health care and pension benefits. Small business owners are also the major source of tax cheating. Their evasion of hundreds of billions of taxes every year leave the rest of us with larger tax bills...

More Failed Airthmetic at the WSJ

It's often said that everyone in Washington is so smart that they skipped directly from 2nd grade to 4th grade. This explains why so many people in top positions don't know third grade arithmetic. The WSJ gave us another example of this lack of knowledge when it listed Medicare and Social Security as "the U.S.'s biggest budget busters." In fact, those of us who did sit through third grade know that Social Security actually is running an annual surplus. The amount of money it takes in each year on the designated Social Security tax and the interest it collects on its bonds exceeds what it pays out in benefits. While Medicare's costs are rising rapidly due to the broken private health care system, Social Security is a money loser in the same way as IPOD is for Apple. --Dean Baker

Japan Can Expect to Become Less Crowded and Less Polluted and the Post Screams "Crisis"

Japan is one of the most crowded countries in the world. It hires people to push commuters into over-packed Tokyo subway cars during rush hours. Given its overcrowding, it is difficult to see why the Japanese people should view the prospect of the declining population as a crisis, as the Washington Post argues in a "news" story . In fact, Japan's economy continues to produce far more than it consumes, which is why it has a trade surplus, something that appears in the Post article as a serious negative. In fact, economists would argue that this is exactly what a country with an aging population should be doing: running trade surpluses so that it can draw on foreign assets in future decades. It is not clear what sort of crisis the Post envisions from the aging of Japan's population. It seems to believe that Japan will face a labor shortage, but of course this is the opposite of the situation at present where its economy is operating far below full employment. In the future, if its...

Goldman Received Bailout Money at Far Below Market Interest Rates

The NYT discussed the prospects for the 2009 bonus for Goldman Sachs CEO Loyd Blankfein, which it reports could be as high as $100 million. The article notes anger over the huge bonuses at bailed out institutions, but then tells readers that Goldman paid back the money "with interest." It would have also been worth informing readers that the interest paid by Goldman was far below the market interest rate at the time of the crisis. We know this because Warren Buffet contracted to lend money to Goldman at the the same time as it received TARP money and charged more than twice the interest rate as the government. In addition, Goldman was allowed to borrow more than $20 billion with a guarantee from the FDIC. This guarantee saved Goldman several billion dollars in interest costs. Goldman likely also borrowed billions of dollars at below market interest rates from the Federal Reserve Board's special lending facilities, although we don't know this for certain because Federal Reserve Board...

Why Would China Find It Surprising that the Biggest Victim of Its Currency Policy Complains About it?

The NYT tells readers that: "China’s leaders have grown impatient with lectures on economic policy from their chief debtor, the United States." The reason that the United States is China largest debtor is that China is buying up massive amounts of U.S. government debt and other dollar denominated assets to maintain the high value of the dollar against the yuan. By pushing up the value of the dollar against the yuan, China makes U.S. produced goods less competitive both within the United States and internationally. This is a major cause of the U.S. trade deficit. In addition, because it increases the trade deficit and lowers GDP, China's currency policy also raises the U.S. budget deficit. Who would have more reason to give China "lectures" on its currency policy than the country that suffers most from this policy. The NYT implies that there is something peculiar about the Obama's administration's complaints given that it is a large debtor of China. Of course the whole point is that...

Free Traders Want Banks to Take Their Risky Activities Overseas

According to the NYT , when the Senate Banking Committee heard testimony by Paul Volcker on his proposal to restrict proprietary trading by commercial banks, Senator Bob Corker expressed concern that the restrictions would cause banks to move overseas. It appears as though Mr. Corker implied that this would be a bad thing. In fact, if banks who want to engage in risky behavior move their operations overseas we should view this as a positive. The explicit and implicit support that governments give to their banks is a form of subsidy. The subsidy is larger if the banks are allowed to take excessive risks. If other countries allow their banks to take bigger risks than would be allowed in the United States, then people and businesses in the United States can take advantage of their more lax regulation. If things turn out badly, then these other countries will end up picking up the tab for their banks, just as did Iceland. This is an argument for effective regulation in the United States,...