...While the United States is still slowly recovering from the worst recession since the Great Depression, fortunately this time around government safety net programs have been in place to keep more people from falling into poverty. The Supplemental Poverty Measure (SPM) shows the strength of the government to mitigate the incidence of poverty.
As the figure below shows, Social Security is, by far, the most effective anti-poverty program in the United States. Without Social Security, an additional 8.3 percent of Americans, or over 25 million more people, would fall below the SPM poverty threshold. Refundable tax credits, such as the Earned Income Tax Credit, kept 2.5 percent, or nearly 8 million Americans above the SPM poverty threshold. Other programs such as SNAP (food stamps), unemployment insurance, Supplemental Security Income, and housing subsidies also have a significant impact on the ability of families to stay afloat.
Monday, August 12, 2013
Sunday, August 11, 2013
One more from Brad DeLong:
Why We Need a Bigger Social Security System with Higher, Not Lower Benefits: Edward Filene's idea from the 1920s of having companies run employer-sponsored defined-benefit plans has, by and large, come a-crashing down. Companies turn out not to be long-lived enough to run pensions with a high enough probability. And when they are there is always the possibility of a Mitt Romney coming in and making his fortune by figuring out how to expropriate the pension via legal and financial process. Since pension recipients are stakeholders without either legal control rights or economic holdup powers, their stake will always be prey to the princes of Wall Street.
That suggests that what we really need is a bigger Social Security system--unless, of course, we can provide incentives and vehicles for people to do their retirement saving on their own. But 401(k)s have turned out to be as big a long-run disaster as employer-sponsored defined-benefit pensions when one assesses their efficiency as pension vehicles.
And so let me turn the mike over to James Kwak: The Problem with 401(k) Plans ...
Monday, August 05, 2013
...all those extra costs for the uninsured drove up premiums for everyone else, drove up hospital costs, giving them a reason to raise prices even further, and played a role in rendering healthcare unaffordable for many others.
What Obamacare does, like Romneycare before it, is end this free-loading.
The law is telling these young adults that if you want to go without insurance, you are not going to make everyone else pay for it if your risk-analysis ends up faulty. You have to exercise a minimum of personal responsibility to pay for your own potential healthcare. In other words, rights come with responsibilities in a liberal democracy. At least that is what I always understood the conservative position to be.
So why is an allegedly conservative organization actively encouraging personal irresponsibility? Why are they encouraging one sector of society – the young and the fearless – to rely on everyone else’s sacrifice to get bailed out if they have an accident, or contract cancer, or need a hospital to deliver a baby? This is not freedom as the Founders understood it; it’s recklessness, irresponsibility and short-sighted selfishness. Now, if the twentysomethings cannot afford it, it’s one thing – and part of our healthcare cost crisis. But now that Obamacare has removed that excuse and demands that every citizen actually contribute to the insurance pool, that completely defensible excuse is over. No more free-loading, in other words.
So I ask again: why is free-loading now a conservative value? ...
Social Security is similar. If people weren't required to contribute, many wouldn't (if for no other reason than the immediate financial demands for many families make it hard to save). But we, as a society, wouldn't let them starve and die when they are no longer able to work, and the rest of us would end up footing the bill. So we require people to contribute to their own retirement through withholding for Social Security. Like health insurance for the young, many people don't need Social Security to retire comfortably, but for those who do it's a lifesaver, one that is at least partially funded through their own contributions.
Thursday, July 18, 2013
[via CBPP: "... Elsewhere we’ve noted that our Social Security system pays pretty modest benefits compared with other advanced nations. ..."]
Monday, July 15, 2013
It feels weird to agree with something at NRO Online:
GOP to Taxpayers: We’re Against Subsidies, Except If They’re For Rich Farmers, by Veronique de Rugy : A few weeks ago, I suggested that splitting the farm bill into two pieces would have the benefits of breaking the alliance between the pro-farm and food-stamp spending lobbies ... and ... would finally put farm subsidies on the path to elimination where they belong. Boy, was I wrong. As it turns out, Republicans are as eager as ever to continue to support a “ag-only bill” that includes indefensible subsidies to farmers, such as sugar-producer programs, and creates new income-entitlement programs, such as the shallow-loss program. ...:... Every Democrat and 12 brave Republicans voted no for a bill that spends more than the ag-only provisions in the Senate farm bill, saves less than half what Republicans agreed to in their House Budget, and falls short of the cuts called for in the President’s budget request.
To add insult to injury, this move just feeds into the portrait Democrats like to paint of Republican lawmakers: They will support any policies that favor the rich – even if they mean more government spending – and like to oppose policies that would benefit lower-income Americans. In this case, there is some truth to that. Republicans are showing that, while some of them weren’t willing to vote for the farm bill as long as it included food stamps, they will support the outrageous redistribution of income to higher-income Americans when it benefits wealthy farmers. ...
When I was a kid, my mom used to get really mad when my uncle, a fairly well-off farmer and a Republican who took his share from these programs, would complain about welfare. He takes welfare too! she'd tell me on the car ride home ... and he doesn't even need it!
Remember when conservatives used to talk about a "kinder and gentler" America?:
Hunger Games, U.S.A., by Paul Krugman, Commentary, NY Times: Something terrible has happened to the soul of the Republican Party. We’ve gone beyond bad economic doctrine. We’ve even gone beyond selfishness and special interests. At this point we’re talking about a state of mind that takes positive glee in inflicting further suffering on the already miserable.
The occasion for these observations is ... the monstrous farm bill the House passed last week. For decades, farm bills have had two major pieces. One piece offers subsidies to farmers; the other offers nutritional aid to Americans in distress, mainly in the form of food stamps...
Long ago, when subsidies helped many poor farmers, you could defend the whole package as a form of support for those in need. Over the years, however,... farm subsidies became a fraud-ridden program that mainly benefits corporations and wealthy individuals. Meanwhile food stamps became a crucial part of the social safety net.
So House Republicans voted to maintain farm subsidies — at a higher level than either the Senate or the White House proposed — while completely eliminating food stamps from the bill. ...
Given this awesome double standard — I don’t think the word “hypocrisy” does it justice — it seems almost anti-climactic to talk about ... the theory, common on the right, that ... we have so much unemployment thanks to government programs that, in effect, pay people not to work? (Soup kitchens caused the Great Depression!) The basic answer is, you have to be kidding. Do you really believe that Americans are living lives of leisure on $134 a month, the average SNAP benefit?
Still, let’s pretend to take this seriously..., what’s going on here? Is it just racism? No doubt the old racist canards — like Ronald Reagan’s image of the “strapping young buck” using food stamps to buy a T-bone steak — still have some traction. But these days almost half of food stamp recipients are non-Hispanic whites... So it’s not all about race.
What is it about, then? Somehow, one of our nation’s two great parties has become infected by an almost pathological meanspiritedness, a contempt for what CNBC’s Rick Santelli, in the famous rant that launched the Tea Party, called “losers.” If you’re an American, and you’re down on your luck, these people don’t want to help; they want to give you an extra kick. I don’t fully understand it, but it’s a terrible thing to behold.
Friday, June 14, 2013
Jesse Rothstein finds that the rise in disability filings in recessions is not due to people "exaggerating real disabilities or through outright fraud":
Are Long-Term Unemployed Taking Refuge in Disability?, by Ben Casselman, WSJ: The sharp rise in federal disability rolls in recent years ... is troubling to economists and policymakers because the program, administered by the Social Security Administration, is expensive, and because once workers go on disability, they rarely come off.
Economists have long known that disability filings go up during recessions, but they aren’t sure why. Perhaps the most worrisome theory is that displaced workers are essentially using disability insurance as a form of extended unemployment benefits, either by exaggerating real disabilities or through outright fraud.
University of California, Berkeley economist Jesse Rothstein set out to test that theory. He reasoned that if the increase is being driven by unemployed workers gaming the system, there ought to be a correlation between expiring jobless benefits rising disability claims. ... When Mr. Rothstein looked at the data, however, he found no such correlation. ... Mr. Rothstein’s findings ... are still preliminary...
Then why do disability rolls rise in bad times?:
A construction worker who hurts his back, for example, might be able to get a desk job during good economic times; when unemployment is high, however, making such a career switch could be much harder. Moreover, companies are much more likely to make accommodations for existing workers who become disabled than to hire a disabled worker — so a person with a disability who loses a job might well struggle to find a new one. ...
Basically, people with disabilities face a choice, apply (and likely get) disability, or continue working in another occupation where the disability is less of (or not) an obstacle. In bad times, alternatives that will allow the disabled to continue working in another occupation dry up, and the first choice -- going on disability -- is more likely. As the article notes, once this (expensive) choice is made it is generally not reversed when the economy improves.
From OECD Insights:
The impact of immigrants – it’s not what you think, by Brian Keeley: In the land of tabloid terrors, immigrants loom large. Flick through the pages or online comments of some of the racier newspapers, and you’ll see immigrants being accused of stealing jobs or, if not that, of being workshy and “scrounging benefits”.
Such views may be at the extreme end of the spectrum, but they do seem to reflect a degree of public ambivalence, and even hostility, towards immigrants in a number of OECD countries. Anecdotal evidence is not hard to find. ... Surveys offer further evidence...
New research from the OECD indicates that ... across OECD countries, the amount that immigrants pay to the state in the form of taxes is more or less balanced by what they get back in benefits. Even where immigrants do have an impact on the public purse – a “fiscal impact” – it amounts to more than 0.5% of GDP in only ten OECD countries, and in those it’s more likely to be positive than negative. In sum, says the report, when it comes to their fiscal impact, “immigrants are pretty much like the rest of the population”.
The extent to which this finding holds true across OECD countries is striking, although there are naturally some variations. Where these exist, they largely reflect the nature of the immigrants who arrive in each country. ... Indeed, one objection that’s regularly raised to lower-skilled immigrants is the fear that they will live off state benefits.
But, here again, the OECD report offers some perhaps surprising insights. It indicates that low-skilled migrants – like migrants in general – are neither a major drain nor gain on the public purse. Indeed, low-skilled immigrants are less likely to have a negative impact than equivalent locals.
Thursday, June 06, 2013
The Hidden Jobless Disaster, by Edward Lazear, Commentary, WSJ: The ... unemployment rate is not the best guide to the strength of the labor market, particularly during this recession and recovery. Instead, the Fed and the rest of us should be watching the employment rate. There are two reasons.
First, the better measure of a strong labor market is the proportion of the population that is working, not the proportion that isn't. ... By this measure, the labor market's health has barely changed over the past three years.
Second... Every time the unemployment rate changes, analysts and reporters try to determine whether unemployment changed because more people were actually working or because people simply dropped out of the labor market entirely, reducing the number actively seeking work. The employment rate—that is, the employment-to-population ratio—eliminates this issue by going straight to the bottom line...
While the unemployment rate has fallen over the past 3½ years, the employment-to-population ratio has stayed almost constant at about 58.5%, well below the prerecession peak. ...
The U.S. is not getting back many of the jobs that were lost during the recession. At the present slow pace of job growth, it will require more than a decade to get back to full employment defined by prerecession standards. ...
No problems so far, but the next part goes off the rails:
Why have so many workers dropped out of the labor force and stopped actively seeking work? Partly this is due to sluggish economic growth. But research by the University of Chicago's Casey Mulligan has suggested that because government benefits are lost when income rises, some people forgo poor jobs in lieu of government benefits—unemployment insurance, food stamps and disability benefits among the most obvious. ...
These disincentives to seek work may also help explain the unusually high proportion of the unemployed who have been out of work for more than 26 weeks. ...
If the Mulligan story doesn't hold, then the conclusion about QE below doesn't hold either (notice the qualifier "may" in Lazear's statement "disincentives to seek work may also help explain the unusually high proportion of the unemployed")
The Fed may draw two inferences from the experience of the past few years. The first is that it may be a very long time before the labor market strengthens enough to declare that the slump is over. The lackluster job creation and hiring that is reflected in the low employment-to-population ratio has persisted for three years and shows no clear signs of improving.
The second is that the various programs of quantitative easing (and other fiscal and monetary policies) have not been particularly effective at stimulating job growth. Consequently, the Fed may want to reconsider its decision to maintain a loose-money policy until the unemployment rate dips to 6.5%.
We don't know what job growth would have been without fiscal policy and QE -- it could have been even worse (as many econometric examinations imply).
Why am I skeptical about the claim above? There's no evidence that I'm aware of that shows conclusively (or at all) that the supply of workers rather than the demand for workers is the problem. That is, with the ratio of the number of people seeking jobs to the number of available jobs so high, how is it that jobs are going unfilled due to social insurance programs? Do we see, for example, wages rising as firms have trouble finding workers (because they are all enjoying the meager benefits they get so much that there is a shortage)?
Maybe I'm missing something, but if no jobs are going unfilled, then how are social insurance programs holding back the recovery rather than making life a bit less miserable for those who cannot find work?
Wednesday, June 05, 2013
Deficit reduction as a "sacred excuse for ... cruelty":
Welfare for the Wealthy, by Mark Bittman, Commentary, NY Times: The critically important Farm Bill is impenetrably arcane, yet as it worms its way through Congress, Americans who care about justice ... can parse enough of it to become outraged. The legislation costs around $100 billion annually, determining policies on matters that are strikingly diverse...
The current versions of the Farm Bill in ... the House ... is proposing $20 billion in cuts to SNAP — equivalent ... to “almost half of all the charitable food assistance that food banks and food charities provide to people in need.”
Deficit reduction is the sacred excuse for such cruelty, but the first could be achieved without the second. Two of the most expensive programs are food stamps, the cost of which has justifiably soared since the beginning of the Great Recession, and direct subsidy payments.
This pits the ability of poor people to eat — not well, but sort of enough — against the production of agricultural commodities. That would be a difficult choice if the subsidies were going to farmers who could be crushed by failure, but in reality most direct payments go to those who need them least.
Among them is Congressman Stephen Fincher, Republican of Tennessee, who justifies SNAP cuts by quoting 2 Thessalonians 3:10: “For even when we were with you, we gave you this command: Anyone unwilling to work should not eat.”
Even if this quote were not taken out of context... [there is no need] to break a sweat countering his “argument”... 45 percent of food stamp recipients are children, and in 2010, the U.S.D.A. reported that as many as 41 percent are working poor. ... Fincher himself [is] a hypocrite.
For the God-fearing Fincher is one of the largest recipients of U.S.D.A. farm subsidies in Tennessee history; he raked in $3.48 million in taxpayer cash from 1999 to 2012, $70,574 last year alone. The average SNAP recipient in Tennessee gets $132.20 in food aid a month; Fincher received $193 a day. ...
Fincher is not alone in disgrace, even among his Congressional colleagues, but he makes a lovely poster boy for a policy that steals taxpayer money from the poor and so-called middle class to pay the rich...
Monday, June 03, 2013
All the hand-wringing you hear over the cost of social insurance programs such as Medicare and Social Security is a ploy from the right designed to get you to support cuts -- don't fall for it:
The Geezers Are All Right, by Paul Krugman, Commentary, NY Times: Last month the Congressional Budget Office released its much-anticipated projections for debt and deficits, and there were cries of lamentation from the deficit scolds who have had so much influence on our policy discourse. The problem, you see, was that the budget office numbers looked, well, O.K... But if you’ve built your career around proclamations of imminent fiscal doom, this definitely wasn’t the report you wanted to see.
Still... Doesn’t the rising tide of retirees mean that Social Security and Medicare are doomed unless we radically change those programs now now now?
To be fair, the reports of the Social Security and Medicare trustees released Friday do suggest that America’s retirement system needs some significant work. The ratio of Americans over 65 to those of working age will rise inexorably over the decades ahead, and this will translate into rising spending on Social Security and Medicare as a share of national income.
But the numbers aren’t nearly as overwhelming as you might have imagined,... the data suggest that we can, if we choose, maintain social insurance as we know it with only modest adjustments. ...
So what are we looking at here? The latest projections show the combined cost of Social Security and Medicare rising by a bit more than 3 percent of G.D.P. between now and 2035, and that number could easily come down with more effort on the health care front. Now, 3 percent of G.D.P. is a big number, but it’s not an economy-crushing number. The United States could, for example, close that gap entirely through tax increases, with no reduction in benefits at all, and still have one of the lowest overall tax rates in the advanced world.
But haven’t all the great and the good been telling us that Social Security and Medicare ... are unsustainable, that they must be totally revamped — and made much less generous? Why yes, they have; they’ve also been telling us that we must slash spending right away or we’ll face a Greek-style fiscal crisis. They were wrong about that, and they’re wrong about the longer run, too.
The truth is that the long-term outlook for Social Security and Medicare, while not great, actually isn’t all that bad. It’s time to stop obsessing about how we’ll pay benefits to retirees in 2035 and focus instead on how we’re going to provide jobs to unemployed Americans in the here and now.
Friday, May 31, 2013
The "ugly, destructive war against food stamps":
From the Mouths of Babes, by Paul Krugman, Commentary, NY Times: ...I usually read reports about political goings-on with a sort of weary cynicism. Every once in a while, however, politicians do something so wrong, substantively and morally, that cynicism just won’t cut it; it’s time to get really angry instead. So it is with the ugly, destructive war against food stamps. ...
Food stamps have played an especially useful — indeed, almost heroic — role in recent years. In fact, they have done triple duty. First, as millions of workers lost their jobs..., food stamps ... did significantly mitigate their misery. Food stamps were especially helpful to children...
But there’s more. ... We desperately needed (and still need) public policies to promote higher spending on a temporary basis — and the expansion of food stamps ... is just such a policy. Indeed, estimates from ... Moody’s Analytics suggest that each dollar spent on food stamps in a depressed economy raises G.D.P. by about $1.70...
Wait, we’re not done yet. Food stamps greatly reduce food insecurity among low-income children, which, in turn, greatly enhances their chances of ... growing up to be successful, productive adults. So food stamps are ... an investment in the nation’s future...
So what do Republicans want to do with this paragon of programs? First, shrink it; then, effectively kill it.
The shrinking part comes from the latest farm bill released by the House Agriculture Committee... That bill would push about two million people off the program. ...
These cuts are, however, just the beginning... Remember,... Paul Ryan’s budget is still the official G.O.P. position..., and that budget calls for converting food stamps into a block grant program with sharply reduced spending. If this proposal had been in effect when the Great Recession struck,... it ... would have meant vastly more hardship, including a lot of outright hunger, for millions of Americans, and for children in particular.
Look, I understand the supposed rationale: We’re becoming a nation of takers, and doing stuff like feeding poor children and giving them adequate health care are just creating a culture of dependency — and that culture of dependency, not runaway bankers, somehow caused our economic crisis.
But I wonder whether even Republicans really believe that story — or at least are confident enough in their diagnosis to justify policies that more or less literally take food from the mouths of hungry children. As I said, there are times when cynicism just doesn’t cut it; this is a time to get really, really angry.
Wednesday, May 29, 2013
Ezra Klein on the equality of opportunity:
No one really believes in ‘equality of opportunity’, by Ezra Klein: ...Everyone in American life professes to believe in equality of opportunity. But nobody really believes in it. ... You can’t have real equality of opportunity without equality of outcome. A rich parent can purchase test prep a poor parent can’t. A rich parent can usher their children into social networks a poor parent can’t. A rich parent can make donations to Harvard that a poor parent can’t. ...
When people say they believe in “equality of opportunity,” they really mean they believe in “sufficiency of opportunity.” They don’t believe all children should start from the same place. But they believe all children should start from a good enough place. They believe they should have decent nutrition and functioning schools and a safe community and loving parents. They believe they should have a chance.
The question is what they’re willing to do about that belief. Democrats who believe in sufficiency of opportunity tend to want to spend more on health care and education for the poor. ... They believe that the less children or their parents need to worry about staying afloat, the more they’ll be free to work to get ahead.
On the Republican side, Rep. Paul Ryan (Wis.) has taken the lead in arguing that conservatives should focus on opportunity. But his approach largely consists of cuts to the safety net. ... These are not policies required by the finances of government. ... Rather, they’re required by Ryan’s theory of opportunity, which is that a key problem for the poor is the transformation of “our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency.” His budget reflects this theory. According to the Center on Budget and Policy Priorities, almost two-thirds of his cuts come from programs that serve the poor.
Helping the poor by cutting the programs they rely on is, to say the least, a risky theory of uplift. It’s easier to see what Ryan’s plan does to impede sufficiency of opportunity than to spread it. ...
I don't see how we can achieve equality of opportunity without some degree of income redistribution. Republicans, of course, generally oppose income redistribution.
I've obscured the point of Ezra Klein's post in the extract above, it's mostly about whether "conservative reformers" who profess to believe in equal opportunity are serious, or simply using the mantra of "equal opportunity" to defend the same old policies that favor key constituencies. There are certainly people in the Republican Party who truly believe that government intervention harms the poor, but for the most part this looks like an excuse to pursue "you're on your own" polices that lower taxes and favor those at the top.
[Note: I have been battling an allergic reaction for the last several days, nothing serious but it is a big annoyance and distraction (the itchiest hives you can imagine from head to toe along with scary tongue swelling, hands a bit swollen, etc., no idea what causes it but Benadryl in large doses provides relief). I'm hoping it will be over soon, in the past it has never lasted this long and I'm "itching" for it to end, but in the meantime it's been hard to focus on blogging (or anything else) -- hence the mostly "echo blogging" the last few days.]
Sunday, May 26, 2013
Krugman Misrepresents the Left-Right Divide in U.S. Politics: In his contribution to the debate over whether there is a group of open-minded "reformed" conservatives, Paul Krugman misrepresents the central focus of the left-right divide in national politics. He tells readers:
"Start with the proposition that there is a legitimate left-right divide in U.S. politics, built around a real issue: how extensive should be make our social safety net, and (hence) how much do we need to raise in taxes? This is ultimately a values issue, with no right answer."
This is not an accurate characterization of the left-right divide in U.S. politics since there is actually little difference between Republicans and Democrats or self-described conservatives and liberals in their support of the key components of the social safety net: Social Security, Medicare, Medicaid, and even unemployment insurance. Polls consistently show that the overwhelming majority of people across the political spectrum strongly support keeping these programs at their current level or even expanding them. The main impulse for cutting back these programs comes from elites of both political parties who would like to pay less in taxes....
I think there is a distinction here after all. Republicans who support these programs do so because (often based upon a misunderstanding of how these programs are funded) they believe it is their money. Each month they contribute to Social Security, Medicare, and Unemployment Compensation, the government keeps it safe for them somewhere, and then at some future date they will spend the money they contributed. It's their money. They don't want the programs eliminated, but they do want to stop the "underserving" from spending the money they contributed. Democrats, on the other hand, are much more likely to support these programs as a means of lifting the unfortunate -- i.e. as a social insurance transfer from those who had good luck with where they were born, family wealth, education, health, and so on to those who had bad luck of one type or another. To put this another way, I don't think the elites in the Democratic Party mind paying higher taxes to support these programs even if it means that there are transfers from the fortunate to the not so fortunate (but they are naive with their "we need to save the programs through cuts now to avoid cuts later" arguments). Republicans mind quite a bit.
We can see this distinction more clearly through another point Dean makes:
There are much smaller programs that are designed primarily to help the poor or near poor where there is a clearer partisan divide (e.g. TANF, SSI, WIC). While it may be more accurate to describe the debate over these programs as a values issue (with a strong racial component), they amount to a relatively small portion of government budgets. These programs may be important to the people directly affected, but they are not central to debates over the budget.
It is plausible to argue that these anti-poverty programs have taken an outsize role in national debates, but this is largely because the electorate is poorly informed about their size. In that case the debate is not over values (I would be for cutting back TANF too if I thought it was one-third of the federal budget), but simple an issue of misinformation.
Another way to say this is that as soon as many conservatives think their money might go to someone else, the underserving poor in particular, they object.
I don't mean to imply that there are no Republicans using the ideological issue of smaller, less intrusive government as a cover for policies that serve special interests (businesses, the wealthy). Many do. I just don't think the statement that "there is actually little difference between Republicans and Democrats or self-described conservatives and liberals in their support of the key components of the social safety net: Social Security, Medicare, Medicaid, and even unemployment insurance" is fully accurate. There's an important distinction that underlies the concept of social insurance, the distinction between a society where risks that individuals cannot control are shared broadly or felt individually, and it's important to recognize this difference between the two political parties.
Monday, May 20, 2013
Don't say you weren't warned. This is Paul Krugman, just a few days under 10 years ago:
Stating the Obvious, by Paul Krugman, Commentary, NY Times, May 27, 2003: "The lunatics are now in charge of the asylum." So wrote the normally staid Financial Times, traditionally the voice of solid British business opinion, when surveying last week's tax bill. Indeed, the legislation is doubly absurd: the gimmicks used to make an $800-billion-plus tax cut carry an official price tag of only $320 billion are a joke, yet the cost without the gimmicks is so large that the nation can't possibly afford it while keeping its other promises.
But then maybe that's the point. The Financial Times suggests that "more extreme Republicans" actually want a fiscal train wreck: "Proposing to slash federal spending, particularly on social programs, is a tricky electoral proposition, but a fiscal crisis offers the tantalizing prospect of forcing such cuts through the back door."
Good for The Financial Times. It seems that stating the obvious has now, finally, become respectable.
It's no secret that right-wing ideologues want to abolish programs Americans take for granted. But not long ago, to suggest that the Bush administration's policies might actually be driven by those ideologues — that the administration was deliberately setting the country up for a fiscal crisis in which popular social programs could be sharply cut — was to be accused of spouting conspiracy theories.
Yet by pushing through another huge tax cut in the face of record deficits, the administration clearly demonstrates either that it is completely feckless, or that it actually wants a fiscal crisis. (Or maybe both.)
Here's one way to look at the situation: Although you wouldn't know it from the rhetoric, federal taxes are already historically low as a share of G.D.P. Once the new round of cuts takes effect, federal taxes will be lower than their average during the Eisenhower administration. How, then, can the government pay for Medicare and Medicaid — which didn't exist in the 1950's — and Social Security, which will become far more expensive as the population ages? (Defense spending has fallen compared with the economy, but not that much, and it's on the rise again.)
The answer is that it can't. The government can borrow to make up the difference as long as investors remain in denial, unable to believe that the world's only superpower is turning into a banana republic. But at some point bond markets will balk — they won't lend money to a government, even that of the United States, if that government's debt is growing faster than its revenues and there is no plausible story about how the budget will eventually come under control.
At that point, either taxes will go up again, or programs that have become fundamental to the American way of life will be gutted. We can be sure that the right will do whatever it takes to preserve the Bush tax cuts — right now the administration is even skimping on homeland security to save a few dollars here and there. But balancing the books without tax increases will require deep cuts where the money is: that is, in Medicaid, Medicare and Social Security.
The pain of these benefit cuts will fall on the middle class and the poor, while the tax cuts overwhelmingly favor the rich. For example, the tax cut passed last week will raise the after-tax income of most people by less than 1 percent — not nearly enough to compensate them for the loss of benefits. But people with incomes over $1 million per year will, on average, see their after-tax income rise 4.4 percent.
The Financial Times suggests this is deliberate (and I agree): "For them," it says of those extreme Republicans, "undermining the multilateral international order is not enough; long-held views on income distribution also require radical revision."
How can this be happening? Most people, even most liberals, are complacent. They don't realize how dire the fiscal outlook really is, and they don't read what the ideologues write. They imagine that the Bush administration, like the Reagan administration, will modify our system only at the edges, that it won't destroy the social safety net built up over the past 70 years.
But the people now running America aren't conservatives: they're radicals who want to do away with the social and economic system we have, and the fiscal crisis they are concocting may give them the excuse they need. The Financial Times, it seems, now understands what's going on, but when will the public wake up?
Tuesday, May 07, 2013
We can be "kinder and gentler" without destroying (or even much affecting) the job market:
Extended Benefits Didn’t Keep People From Taking Jobs, by Amy Schatz, WSJ: Extended unemployment insurance benefits in the most recent recession prompted some people who would otherwise have dropped out of the workforce to stay in a little longer, but didn’t encourage people to reject jobs, according to new research recently released by the Federal Reserve Bank of San Francisco [by] Robert Valletta, a San Francisco Fed economist and Henry Farber, a Princeton University economist...
Sunday, May 05, 2013
Does immigration undermine support for social insurance programs?:
Does immigration hurt support for the welfare state?, by Dan Hopkins: ... there is a ... concern about immigration ... that you are more likely to hear from the European left than the American right: that immigration undermines the social welfare state by making voters less supportive of public spending. ...
The striking thing about the United States, though, is that increasing ethnic and racial diversity hasn’t dampened our public investments.
We can study this by looking at U.S. cities. American municipalities vary markedly in their ethnic and racial demographics, and they routinely make decisions about how to allocate scarce dollars. But when we examine cities’ spending patterns in recent decades, we see that growing diversity has done little to change public good provision. Your public library is likely to have seen cutbacks, but it’s probably not because of your neighbors’ backgrounds. ...
He goes onto provide evidence that a 1999 paper by Alberto Alesina, Reza Baqir, and William Easterly that came to the opposite conclusion had causality backwards. Correcting for this, he finds that "Among the 1,000 largest U.S. cities, those that rapidly diversified saw the same changes in their spending on those categories as did cities that did not diversify."
Monday, April 29, 2013
[Listening to Nouriel Roubini's pessimism about the future during the lunch panel as I do this -- the video of the panel discussing the state of the global economy should be available later today.]
Nancy Folbre objects to the "gendered language" used in the debate over social insurance programs, and to the conclusion that "cuddly" capitalism is bad for innovation:
The Welfare Queen of Denmark, by Nancy Folbre, Commentary, NY Times: ...In short, the Danish record offers no support for the social-spending-hurts-growth position. That doesn’t mean that some economists can’t figure out a way to make that argument anyway. For instance, Daron Acemoglu, James A. Robinson and Thierry Verdier have devised a theoretical model to show why what they term “cuddly” capitalism of the Danish sort may just be free-riding on the “cutthroat” capitalism of the United States sort.
The model posits that cutthroat levels of inequality, as in the United States, promote high levels of technological innovation. The benefits of these innovations cross national borders to help Danes and other Scandinavians achieve growth. In other words, they may be able to get away with being “cuddly,” but some country (like the United States) just has to be tough enough to reward risk-taking, even if it leads to hurt feelings.
The gendered language deployed in this model echoes a general tendency to view social spending in feminine terms: women like to cuddle and are often described as more risk-averse than men. It’s not uncommon to see the term “nanny state” used as a synonym for the welfare state.
Call the Scandinavians sissies if you like, but plenty of evidence in the latest World Competitiveness Report testifies to high levels of overall innovation there — as you might expect in economies even more export-oriented than our own. Danes are world leaders in renewable energy technology, especially wind power. ...
As I've noted before, "an enhanced safety net -- a backup if things go wrong -- can give people the security they need to take a chance on pursuing an innovative idea that might die otherwise, or opening a small business. So it may be that an expanded social safety net encourages innovation."
Sunday, April 21, 2013
Josh Barro tweets:
As @DeanBaker13 points out, that NYT story on Danish welfare didn't really make the case that Danes aren't working.
NYT Uses News Story to Express Dislike of Danish Welfare State, by Dean Baker: The NYT ... features a diatribe against the Danish welfare state that is headlined, "Danes Rethink a Welfare State Ample to a Fault." There's not much ambiguity in that one. The piece then proceeds to present a state of statistics that are grossly misleading and excluding other data points that are highly relevant. ...
The piece ... goes on to describe the extent of the Danish welfare state with its 56 percent top marginal income tax rate, telling readers:
"But few experts here believe that Denmark can long afford the current perks. So Denmark is retooling itself, tinkering with corporate tax rates, considering new public sector investments and, for the long term, trying to wean more people — the young and the old — off government benefits."
Hmmm, it would be interesting to know what data the experts are looking at. According to the IMF, Denmark had a ratio of net debt to GDP at the end of 2012 of 7.6 percent. This compared to 87.8 percent in the United States. Its deficit in 2012 was 4.3 percent of GDP, but almost all of this was do the downturn. The IMF estimated its structural deficit (the deficit the country would face if the economy was at full employment) at just 1.1 percent of GDP. Furthermore, the country had a huge current account surplus of 5.3 percent of GDP in 2012... This means that Denmark is buying up foreign assets at a rapid rate. ...
If there is something unsustainable in this picture, it is not the sort of data that economists usually look at. Is marijuana legal in Denmark?
Then we find the real problem is that no one in Denmark is working:
"In 2012, a little over 2.6 million people between the ages of 15 and 64 were working in Denmark, 47 percent of the total population and 73 percent of the 15- to 64-year-olds.
"While only about 65 percent of working age adults are employed in the United States, comparisons are misleading, since many Danes work short hours and all enjoy perks like long vacations and lengthy paid maternity leaves, not to speak of a de facto minimum wage approaching $20 an hour. Danes would rank much lower in terms of hours worked per year."
So in spite of the generous Danish welfare state a higher percentage of its working age population works than in the United States. (Actually Denmark ranks near the top of the world in employment to population ratios.) Yet, somehow this doesn't really count because people in Denmark get vacations, work shorter hours, and have a higher effective minimum wage.
This ranks pretty high in the non sequitur category, apparently when you want to bash the welfare state, the rules of logic apparently do not apply. Danes, like most Europeans, have opted to take much of the gains in productivity growth over the last three decades in the form of shorter work years rather than higher income. (One interesting result of this practice is that we have some hope to save the planet from global warming -- greenhouse gas emissions are highly correlated with income.) Of course Danes still work about 8 percent more hours on average than hard-working Germans, according to the OECD. If there is a problem in this picture, the NYT might want to devote a few paragraphs to telling readers what it is.
As far as the $20 an hour effective minimum wage, isn't the problem of a high minimum wage supposed to be that it creates unemployment. But the NYT just told us that Denmark has higher employment... (My brain hurts.)
Okay, we get it. The NYT doesn't like Denmark's welfare state. It doesn't really have any data to make the case that Denmark's welfare state is falling apart and leading to all sorts of bad outcomes, but they can wave their arms really fast and hey, they are the New York Times.
Tuesday, April 09, 2013
From the enthusiastic reception American conservatives gave Friedrich Hayek’s “Road to Serfdom,” to Reagan, to the governors now standing in the way of Medicaid expansion, the U.S. right has sought to portray its position not as a matter of comforting the comfortable while afflicting the afflicted, but as a courageous defense of freedom.
That got me to thinking. When I read or watch the US media, I hear lots of talk about freedom - much more than in Europe, say. But do Americans actually feel freer than people elsewhere?
The World Values Survey regularly polls people from around the globe, and asks them about their attitudes, their values, and how much freedom of choice and control they feel they have over their lives.
I don't know if Americans actually do have more freedom than other people - they aren't allowed to import Kinder Eggs, for example, or eat authentic haggis. But I would have thought that, given that the US is supposed to be the land of the free, Americans would at least think that they have control over their lives. As it turns out, however, there isn't much difference between the average American and the average Canadian in the self-reported freedom stakes. As for socialism killing freedom - the Swedish report just as much freedom as Americans do. ...
We are, as they say, live:
Let the Punishment Fit the Crime of the Recession, by Mark Thoma: As Paul Krugman observed recently, “the urge to see depression as a necessary and somehow even desirable punishment for past sins, while inveighing against any attempt to mitigate suffering — is as strong as ever.” Many of those who see our economic problems in these terms believe the sin we committed is too much debt fueled consumption and government spending. According to this view punishments such as austerity and high levels of unemployment provide a moral lesson that helps to prevent us from making the same mistakes again.
This is bad economics and it has the moral lesson all wrong. ...
Monday, April 08, 2013
The People’s Choice for the People’s Pension, by Nancy Folbre: Social Security, the most transparently self-financed program of the federal government, is not increasing our budget deficit. The most recent trustees’ report shows sufficient funds to pay full benefits until 2033.
No one is making out like a bandit: Social Security beneficiaries who retired in 2010 are expected to get back approximately what they paid in.
If we wanted to adopt a cautious policy measure that would eliminate the shortfalls predicted 20 years down the road, we could eliminate the cap on earned income subject to Social Security taxes, currently set at $113,700. Such a measure would lead to increased payments by about the top 5.2 percent of wage earners.
Legislation designed to “scrap the cap” has been introduced in Congress. ... But as Thomas B. Edsall pointed out in a recent commentary, “scrap the cap” has apparently been taken off the table, despite evidence of considerable public support for it. ...
It's not hard to guess why, but as she goes on to explain, "lobbying efforts and misinformation campaigns aimed at bringing the program down" are a big part of the "history of class warfare over social insurance."
Social insurance does not undermine free societies:
Insurance and Freedom, by Paul Krugman, Commentary, NY Times: ...How many Americans will be denied essential health care in the name of freedom?
I’m referring, of course, to the question of how many Republican governors will reject the Medicaid expansion that is a key part of Obamacare. What does that have to do with freedom? In reality, nothing. But when it comes to politics, it’s a different story. ... From the enthusiastic reception American conservatives gave Friedrich Hayek’s “Road to Serfdom,” to Reagan, to the governors now standing in the way of Medicaid expansion, the U.S. right has sought to portray its position not as a matter of comforting the comfortable while afflicting the afflicted, but as a courageous defense of freedom. ...
These days, conservatives make very similar arguments against Obamacare. For example, Senator Ron Johnson of Wisconsin has called it the “greatest assault on freedom in our lifetime.” And this kind of rhetoric matters, because when it comes to the main obstacle now remaining to more or less universal health coverage — the reluctance of Republican governors to allow the Medicaid expansion that is a key part of reform — it’s pretty much all the right has. ...
[However], Medicaid enjoys remarkably strong public support. And now that health reform is the law of the land, the economic and fiscal case for individual states to accept Medicaid expansion is overwhelming. ... But such practical concerns can be set aside if you can successfully argue that insurance is slavery.
Of course, it isn’t. In fact, it’s hard to think of a proposition that has been more thoroughly refuted by history than the notion that social insurance undermines a free society. ...
In fact, the real, lived experience of Obamacare is likely to be one of significantly increased individual freedom. For all our talk of being the land of liberty, those holding one of the dwindling number of jobs that carry decent health benefits often feel anything but free, knowing that if they leave or lose their job, for whatever reason, they may not be able to regain the coverage they need. Over time, as people come to realize that affordable coverage is now guaranteed, it will have a powerful liberating effect.
But what we still don’t know is how many Americans will be denied that kind of liberation — a denial all the crueler because it will be imposed in the name of freedom.
Wednesday, March 27, 2013
The "news isn’t good" about the shift from defined-benefit to defined-contribution pension plans:
Declining Wealth Brings a Rising Retirement Risk, by Bruce Bartlett, Commentary, NY Times: ...[In] defined-benefit ... pension plans..., workers are promised a specific income at retirement, which the employer provides. The employer bears all the risk of market fluctuations. Under a defined contribution scheme, such as a 401(k) plan, the worker and the employer jointly contribute to a tax-deductible and tax-deferred account from which the worker will finance retirement. ...
Now the first generation of workers who have virtually all their pension saving in defined-contribution plans is nearing retirement, and the news isn’t good. According to a March 19 report from the Employee Benefit Research Institute, only about half of workers nearing retirement have confidence that they have enough money saved for an adequate retirement.
Not surprisingly, retirement saving has taken a back seat to more pressing concerns – coping with unemployment, maintaining standards of living during an era of slow wage growth, putting children through increasingly expensive colleges and so on. ...
This problem is much more severe for black Americans. ... The wealth gap isn’t only racial, it’s generational...
What’s really depressing about these studies is the lack of solutions and the likelihood that the problem will only get worse.
Republicans in Congress have pressed for years to convert Social Security, a classic defined-benefit pension, into a defined contribution plan, and also to convert Medicare into a voucher program. These changes would shift even more of the financial risk in retirement onto families that have yet to adapt to fundamental changes in employer pensions and the economy over the last 30 years. The future doesn’t look pretty.
Members of Congress appear to be eager to cut retirement benefits even further to show they can make the hard choices (and the president seems to be on board). They should raise the payroll cap instead, but the "hard choice" that would hit the people who can afford it isn't under consideration. It's not hard to imagine why.
Monday, March 25, 2013
Glad to see someone (Josh Barro) trying to counter the latest nonsense from George Shultz, Gary Becker, Michael Boskin, John Cogan, Allan Meltzer, and John Taylor:
For 'Faster Growth,' Soak the Poor?, by By Josh Barro: This weekend, the Wall Street Journal assembled a redoubtable list of conservative heavies in economics (George Schulz! Gary Becker! John Taylor!) to produce a completely insane account of what is wrong with America's economy and how to fix it. The upshot of the piece is that the U.S. economy is in the tank because the government gives too much money to poor people, and so it should stop. ...
The article is another great example of conservatives' empathy gap on economic issues. The authors emphasize that entitlement cuts must be done in a "humane" way. But they do not stop and think about whether a one-third reduction in Social Security benefits would seem humane to a middle-class person who depends on Social Security as his largest source of income in retirement, as most do. They don't reckon with the possibility that capping the federal commitment to Medicaid would have not just fiscal effects but also human ones: denying health care to people who need it and cannot afford it. ...
So why respond to the poverty-trap problem by calling for big cuts to benefits? The answer, of course, is that every economic ill must be shoehorned into an argument for lower taxes and less government spending. If a proposed solution to an economic problem doesn't involve taking benefits away from poor people, then it's not a solution at all -- at least by the logic that prevails on the Wall Street Journal editorial page.
Monday, March 18, 2013
... If there was a single moment when Mitt Romney lost the 2012 presidential election, it was in May when he stood in front of the $50,000-a-plate audience at Sun Capital honcho Marc Leder’s home in Boca Raton and spoke his soon-to-be-infamous words:
There are 47 percent of the people who will vote for the President no matter what…. There are 47 percent who are with him, who are dependent upon government…who believe that government has a responsibility to care for them, who believe that they’re entitled to health care, to food, to housing, you name it…. These are people who pay no income tax…. My job is not to worry about those people—I’ll never convince them that they should take personal responsibility and care for their lives…
This is what Mark Schmitt of the Roosevelt Institute calls “the theory of the moocher class.” And Romney is all in with it. ...
Those of us who know the numbers, or who simply live in America and look around, know that the 47 percent who aren’t paying federal income taxes this year are by and large not “moochers.” About a fifth are elderly retired. About two-thirds are in households with incomes of less than $20,000 a year—definitely not living high. And nearly one-third owe no income taxes because of the earned-income and child tax credits, which both became law with bipartisan support.
As a group, the 47 percent who pay no income taxes do not lack work ethic. They do take personal responsibility for their lives. They may not pay federal income taxes this year, but they pay plenty of sales, property, and payroll taxes. For the most part, they do not constitute the Democratic base. More than half of the 47 percent are the elderly white and Southern white voters who voted for Romney by substantial margins.
So how does someone like Romney, along with his peers and all their staffs and everyone else in that Boca Raton room, become convinced that 47 percent of Americans are the moochers, the takers, dependent on “free gifts” from the government, lacking work ethic, lacking personal responsibility?
Enter Nicholas Eberstadt of the American Enterprise Institute (AEI), with his contribution to the think tank’s “New Threats to Freedom” series. We need venture no further into A Nation of Takers than the bottom of the second page…
As I noted yesterday, conservatives are still blaming their loss in the presidential election on the idea that Democrats are "giving away free stuff" to their constituents. I think this passage highlights the mistake they are making:
The truth is that the American government spends much of its money transferring resources from some members of the broad middle class to others in the same class: unemployment insurance, Social Security, Medicare, and increasingly Medicaid (which every day shifts more from a program focused on the nonelderly poor to one spending a greater share on the disabled and on the elderly who can no longer make their Medicare co-payments). The recipients of these social-insurance benefits do not think of themselves as moochers. They paid into these systems. They believe that they earned those benefits—and in large part they did.
Eberstadt sees things differently...
The good thing -- for Democrats -- is that the more that conservatives are criticized over this, the more they seem to dig in their heels.
Sunday, March 17, 2013
Conservatives are still blaming their loss in the presidential election on "giving away free stuff":
Today on CNN, president of the American Conservative Union Al Cardenas offered an explanation for conservatives’ defeat in November: They weren’t giving away free stuff. He said, “plenty of people have asked me what happened after the 2012 election. . . . Well, look, we were selling broccoli to 70 percent of the American electorate, and they were giving away cheesecake to 100 percent of the electorate.”
They call most everyone who isn't white and rich moochers, and then whine about losing.
But who are the real recipients of income they did not earn? Over the last several decades, almost all of the gains from economic growth have gone to the top. Income flowing to lower income levels has not kept up with changes in worker productivity, and that means members of some group -- guess which one -- received income that exceeds their productivity growth, i.e. in excess of their contribution to national output.
Clawing some of that income back through taxes or other means is far from mooching. In fact, it supports a core conservative idea, making sure that people receive the income that they've earned (or, the flip-side which is being pitched above -- please excuse the double negative -- the conservative obsession with making sure that people don't get income they do not deserve).
Thursday, March 14, 2013
Dean Baker is tired of the wealthy and powerful using scare stories about social insurance programs to keep the spotlight off of the real issue:
Steve Rattner: Stop Stealing from Our Kids!, by Dean Baker: Steve Rattner wants someone to stop stealing from our kids according to the headline of his blogpost in the NYT. The finger should be pointed backwards in Rattner's case because if anyone is going to jeopardize the living standards of our kids it is wealthy people like Mr. Rattner.
We have seen an enormous upward redistribution of income over the last three decades. As a result most workers have seen little of the benefits of economic growth. If this upward redistribution continues, then our children are unlikely to see much of the gains of growth in the future.
Rather than have people focus on the policies that have led to this upward redistribution..., wealthy people like Rattner use their money and power to try to divert attention to the cost of Social Security and Medicare. They have thrown enormous resources into trying to scare people with the prospective burdens posed by these programs. For example, Rattner today tells us that with Social Security:
"The present value of the unfunded liability is 'only' $9 trillion."
Are you scared yet? After all, it's "only" $9 trillion. Didn't you love that sarcasm? Yes, $9 trillion is a lot of money... But if we are having a serious discussion, we would talk about this as a share of future income. It's about 0.7 percent of future GDP. Does that scare you?
That's a bit less than half of the cost of the wars in Afghanistan and Iraq over the last decade, that's hardly trivial, but that expense would not impoverish our kids. Medicare and Medicaid are projected to cost more but that has nothing to do with the old stealing from the young, their higher costs are the result of doctors, drug companies, medical supply companies and other providers in the industry charging us two to three times as much as their counterparts in other wealthy countries. If we paid the same amount per person for our health care as people in other wealthy countries then we would be looking at long-term budget surpluses rather than deficits.
The reality is that the hit to future living standards from demographics is relatively modest. It is easily dwarfed by the gains from projected productivity growth even under very pessimistic assumptions. Even if productivity just grows at the same rate as it did in the slowdown era from 1973-1995 the gains from productivity growth through 2035 would be more than three times the potential hit that our children would face from supporting a larger population of retirees. And after 2035 productivity continues to grow, even as the demographics barely change. ...
But this story depends on our children being able to capture the gains of productivity growth rather than seeing them all go to the top. That requires a reversal of the policies of the last three decades. But rather than having people talk about the policies that are causing this massive upward redistribution, Rattner is trying to set children against their parents and grandparents. And the NYT is apparently happy to give him the space to do so.
If we could correct the "mal-distribution" of income so that income growth does a better job of tracking the productivity growth of workers and other groups (worker's incomes have not kept pace with their increased productivity in recent decades, evidence of distortion in the distribution of income with too much to the top, not enough to the middle and bottom), many of our worries about funding social programs would evaporate (and if the distorted distrubution had been corrected in the past instead of being exacerbated through tax cuts and other means, we'd be in much, much better shape today).
Thursday, March 07, 2013
Dean Baker's blog is called "Beat the Press," but he praised this effort (the original is quite a bit longer, and makes additional points):
The War On Entitlements, by Thomas Edsall, Commentary, NY Times: ...Currently, earned income in excess of $113,700 is entirely exempt from the 6.2 percent payroll tax that funds Social Security benefits... Simply by eliminating the payroll tax earnings cap — and thus ending this regressive exemption for the top 5.2 percent of earners — would, according to the Congressional Budget Office, solve the financial crisis facing the Social Security system.
So why don’t we talk about raising or eliminating the cap – a measure that has strong popular, though not elite, support? ... The Washington cognoscenti are more inclined to discuss two main approaches...: means-testing of benefits and raising the age of eligibility for Social Security and Medicare. ... Means-testing and raising the age of eligibility as methods of cutting spending appeal to ideological conservatives for a number of reasons.
First, insofar as benefits for the affluent are reduced or eliminated under means-testing, social insurance programs are no longer universal and are seen, instead, as a form of welfare. Public support would almost certainly decline, encouraging further cuts in the future. Second, the focus on means-testing and raising the age of eligibility diverts attention from a much simpler and more equitable approach: raising the payroll tax to apply to the earnings of the well-to-do, a step strongly opposed by the ideological right. ... Third, and most important in terms of the policy debate, while both means-testing and eliminating the $113,700 cap on earnings subject to the payroll tax hurt the affluent, the latter would inflict twice as much pain. ...
Theda Skocpol ... of ... Harvard and an authority on the history of the American welfare state contended ... that policy elites avoid addressing the sharply regressive nature of social welfare taxes because, “at one level, it’s very, very privileged people wanting to make sure they cut spending on everybody else” while “holding down their own taxes.” ...
Monday, February 25, 2013
Fix the Economy, Not the Deficit, by Dean Baker, The American Prospect: It’s hard to be happy about the prospect of the sequester ... going into effect at the end of the week. Not only will it will mean substantial cuts to important programs; it will be a further drag on an already weak economy, shaving 0.6 percentage points off our growth rate. ...
Of course, it could be worse. Half of the cuts are on the military side. This will help to bring our bloated military sector closer to its pre-September 11 share of the economy, and going forward, the principle that domestic cuts be matched by cuts in defense spending is certainly better than the idea of attacking domestic spending alone. In addition, the most important programs in the budget—Social Security, Medicare, and Medicaid—have been largely spared the ax—an important victory in the 2011 negotiations. ...
The next step at that point is unclear. President Obama has explicitly offered cuts in Social Security and Medicare if the Republicans will go along with higher taxes. For those who oppose cuts to these programs, the generous view of this maneuver is that he knows that the Republicans won’t budge on taxes; by offering a compromise, he is simply making them look unreasonable. The less generous view is that he is actually willing to make cuts in these programs, sharing the view of Washington Post-centrist types that seniors are living too high on the hog.
While the odds are against a “grand bargain” that couples tax increases with cuts to Medicare, Medicaid, and Social Security, it remains a possibility. However, it’s more likely that President Obama and Congress will agree to some scaled-down version of the sequester... This will have the deficit hawks yelling and screaming, but that would be the best plausible outcome from the standpoint of the economy. ...
My view is of the less generous variety. I think Obama is quite willing to make these cuts.
Thursday, February 21, 2013
Have distractions this morning, so a quick one. Thoughts on this? (I don't like all of these proposals, but do like the ones that offer a positive incentive, e.g. a bonus, for finding work sooner rather than later):
Rebuilding Unemployment Insurance, by Tim Taylor: In theory, the federal government sets minimum guidelines for each state's unemployment insurance system, and then each state sets its own rules for what is paid in and and what benefits are offered. Each state has its own unemployment trust fund. The idea is that the the trust fund will build up in good economic times, and then be drawn down in recessions. But it hasn't actually worked that way for a long time, and the problem is getting worse. Christopher J. O’Leary lays out the issue and possible solutions in "A Changing Federal-State Balance in Unemployment Insurance?" written for the January 2013 Employment Research Newsletter published by the Upjohn Institute.
When a recession hits, the federal government has developed a habit of stepping in with extra unemployment insurance funds. For example, the feds stepped in with additional funding ... in 1958, 1961, 1971, 1974, 1982, 1991 and 2002--as well as during the most recent recession. With the feds stepping up, it has been easier and easier for the states to keep their unemployment taxes as low as possible. For example, average unemployment insurance taxes (adjusted for inflation) were $274/employee in 2008, lower than the $350/employee in 1994 and the $515/employee in 1984, according to Ronald Wilus of the U.S. Department of Labor.
As a result, over time the feds are paying for a larger share of unemployment insurance during recessions. ... What would be needed to get back to a system where states save up funds for unemployment insurance money in trust funds--even if some federal help might occasionally be needed?
One step suggested by O'Leary is to raise the "tax base." At present, the minimum federal standard requires that states collect unemployment insurance taxes on the first $7000 of taxable wages--a level that was established back in 1983. Just adjusting that $7,000 base for inflation would mean increasing it to about $16,000. O'Leary notes that 35 states currently have a taxable wage base at or below $15,000.
A second step would be to have a rule that unemployment insurance benefits would not kick in until after a waiting period. O'Leary writes: "A much neglected potential reform on the benefit side would be to institute waiting periods of 2–4 weeks, with the duration of the wait depending inversely on the aggregate level of unemployment. ... A somewhat longer waiting period will reduce program entry by those with ready reemployment options, and help to preserve the income security strength of the system for those who are involuntarily jobless for 4, 5, or 6 months."
Yet another step would be to use federal rules to discourage states from lowballing the funding of their unemployment insurance and relying on an influx of federal funding. ...
It's worth pointing out that unemployment insurance has a number of problems other than whether it is pre-funded. You need to meet certain qualification tests for unemployment insurance, typically based on earnings in the previous year or so, and as a result, many of the unemployed do not receive unemployment insurance. In January 2013, about 3.5 million people were receiving unemployment insurance benefits, but about 12.3 million people were unemployed.
There are also a number of proposals that seek to adjust the incentives so that unemployment insurance can better co-exist with incentives to find a new job. Some proposals are that unemployment benefits should be larger, so as to soften the economic blow of unemployment, but for a shorter time, to hasten the incentive to find a new job. Some proposals would require or allow people to set up individual unemployment accounts, which they could keep at retirement, so that people would tap their own money before turning to the government fund. One proposal would offer a bonus to those receiving unemployment insurance if they found a job quickly, because it could be less costly for the unemployment insurance trust fund if they find a job faster rather than linger on receiving benefits.
The Great Recession and its aftermath have wrecked the premises of the existing unemployment insurance system. It's time to rebuild.
Friday, January 25, 2013
... How long will it be before the likes of Veronique de Rugy stop denouncing Social Security, Medicare, Unemployment Insurance, etc. as programs that have turned us into "a nation of takers", and stop denouncing these programs beneficiaries as "moochers"?
It is in some ways very odd. It used to be that critics of the welfare state pointed to high net marginal tax rates and argued that they had high deadweight losses. Sometimes they had a point. Then, after bipartisan reforms, we got to a point where there were few high net marginal tax rates large enough to induce large deadweight losses.
And then, in the blink of an eye, the problem became not public-finance deadweight losses but, rather, the moocher class, the nation of takers, etc. ...
Paul Krugman on Paul Ryan's (ahem) defense of Social Security and Medicare:
...everyone has noted Ryan’s raw dishonesty here, let’s not let the cowardice pass unmentioned. If you’re a Randian conservative, as Ryan claims to be, then you should consider Social Security and Medicare every bit as much a part of the moocher conspiracy as Medicaid and food stamps. And don’t say that you pay for what you get: Social Security benefits aren’t proportional to payment, so that the system is somewhat redistributionist, and Medicare benefits don’t depend at all on how much you pay in, so that the system is strongly redistributionist. (You might even say that Medicare takes from each according to his ability, and gives to each according to his needs).
All of this is fine with me, but it should be anathema to Ryan. But he knows that Social Security and Medicare are popular, so he pretends that his radical philosophy has nothing bad to say about these programs, and that we can massively downsize government on the backs of the undeserving poor.
But remember, he’s a Brave, Honest Conservative. Everyone says so.
Speaking of social insurance, here's James Kwak:
...Unsurprisingly, most Americans are split between various misconceptions of what Social Security and Medicare are. Many, particularly right-wing politicians and their media mouthpieces, see them as pure tax-and-transfer programs: they gather money from one set of people and give it to another set of people. This feeds easily into the makers-vs.-takers line, with payroll taxes on workers going to fund benefits for non-workers. From this point of view, they are bad bad bad bad bad and should be cut.
Many others, particularly beneficiaries and people who hope to see beneficiaries, see them as earned benefits. The common conception is that you pay in while you’re working, so you earned the benefits you get in retirement..., you’re just getting back “your” money that you set aside during your career.
Both of these perspectives are wrong, the latter more obviously so. Most people, during their working careers, do not pay nearly enough in payroll taxes to pay for their expected benefits. This is most obvious for Medicare...
The problem with the tax-and-transfer argument is only slightly more subtle. Sure, at any given moment some people pay taxes and others collect benefits (and many do both, since Medicare is funded by general revenues). But most of us will both pay and receive at different points in our lives. So both programs are really more like income-shifting arrangements...
In the inaugural address, I think the president got it basically right. They are risk-spreading programs. You don’t get back exactly what you put in: they have a certain degree of progressivity (although less for Social Security than is commonly imagined). Their main function is to protect people against extreme outcomes by pooling a limited share of our resources.
Yes, rich people end up paying payroll taxes for insurance they end up not needing. But that’s how insurance always works: you pay the premiums hoping you won’t need it. And the key fact is that most young people, whey they start paying payroll taxes, don’t know what their own personal outcomes will be. ... Like any insurance scheme, you can make everyone better off simply by moving money around between different states of the world.
These particular insurance schemes, as the president said, have a moral element to them. They are a way of expressing out solidarity with each other as Americans, people united, however loosely, in a common endeavor. They also have an economic element to them. People protected against bad outcomes are more willing to take the risks needed for a vibrant and prosperous society. They are something to celebrate, not something to be embarrassed about whenever the Republicans come after them.
I've written quite a bit about the insurance aspect as well, e.g. see The Need for Social Insurance:
Economic systems differ in their ability to provide goods and services and in the level of economic risk faced by a typical household. Socialism is a low mean, low variance economic system. With a planned economy, cycles in unemployment do not occur unless mandated by planners. Worker income, though low, is not subject to substantial variation over time. Other economic risks, such as access to housing and risks related to healthcare are also very low since these services are provided by the state. Economic risks for workers are low in such a system, but so is average income.
Under capitalism the average level of income is much higher, but economic risk is higher as well. In a capitalist system, workers can be involuntarily displaced as new products are invented, new production techniques are implemented, production moves outside the country, or inevitable business cycle variation occurs. These are shocks that affect workers independent of their own behavior. A worker who has shown up to work every day and worked hard to support a family can be suddenly unemployed for reasons unrelated to anything connected to his or her own behavior.
As the U.S. entered the 20th century, important social changes arising from industrialization were becoming increasingly evident, and these changes exposed the high degree of economic risk under a capitalist system. Migration to cities and the resulting breakup of the extended family, reliance on wage income as a primary means of support, and increasing life expectancy resulted in increased economic risk for the typical worker relative to the more agrarian economy that existed prior to industrialization.
In an agrarian economy, economic security is provided by extended family relationships coupled with the largely self-sufficient nature of farms. On a farm, a recession is a bad harvest, but it generally does not mean a total lack of income. Times can be tough, food can be very scarce and there can be hunger, but generating a subsistence level of income from the farm is usually possible even in the worst of years. For a worker dependent solely upon wage income, the consequences of a recession are much more severe. A recession means a total lack of income, not just hard times. Without the help of others or the existence of some type of social insurance program, abject poverty is a real possibility (see Life After the Great Depression for descriptions of the misery that followed the Great Depression).
Retirement also takes on a different character. On the farm, retirement meant gradually, if often reluctantly, letting the children take over responsibility for the farm, but it did not mean a total loss of income. Children provided for parents. But an aging worker in a city, perhaps disconnected geographically from their children, faces a different circumstance upon retirement. Such a worker may face a complete loss of income, and disability from age is not always an event that occurs according to plan. Even a worker who has diligently saved for retirement can suddenly become impoverished due to events such unexpected health costs, or even a much longer life than expected.
As industrialization progressed, 1920 marks a benchmark year where, for the first time, more than half of the population lived in cities. When the Great Depression hit around a decade later, the social changes the U.S. was experiencing and the need for new ideas regarding the government’s responsibility for the economic security of its citizens became clear. The Great Depression made it evident that in a capitalist system, where the whimsies of the marketplace can wreak havoc on people’s lives, the government has an obligation to provide economic security. It was also evident that the private sector did not provide the needed level of insurance and that government intervention was required to overcome this problem (due to both moral hazard and asymmetric information problems in the private insurance market).
It is important that the economy be allowed to change with new technology and changing preferences, but the consequences for innocent workers affected by such changes is a social responsibility that needs to be addressed. In addition, as extended family relationships are hindered by geography and the social contract between parents and children breaks down, the elderly need a way to avoid poverty. Programs such as Unemployment Compensation, Medicare, and Social Security arose as a means to mitigate these economic risks under capitalism using the least amount of society’s valuable resources.
Drawing a rough analogy, socialism is like investing in T-Bills. Low risk, but low return. Capitalism is like the stock market. There is a higher average return accompanied by higher risk. Financial theory tells how to insure against such risks and there is no reason why this cannot be applied in the social insurance arena to smooth variations in income.
There is a need for social insurance under capitalism.
Thursday, January 24, 2013
This is part of the introduction to a new paper by Karen Dynan, Douglas Elmendorf, and Daniel Sichel on household income volatility (they find that volatility has increased in recent decades):
The Evolution of Household Income Volatility, by: Karen Dynan, Douglas Elmendorf, and Daniel Sichel: Editor's Note: The full version of this paper is available at the website for the B.E. Journal of Economic Policy and Analysis. An earlier working version of the paper can be directly downloaded [here].
1. Introduction Researchers have found it relatively straightforward to document changes in the volatility of the U.S. economy as a whole over the last several decades. The aggregate U.S. economy entered a period of relative stability known as the Great Moderation in the mid-1980s and, much more recently, has been in dramatic flux since the onset of the financial crisis and Great Recession in 2007 and 2008. However, aggregate trends do not necessarily translate into trends in the experiences of individual households. For example, the Great Moderation is generally thought to be a period over which the economy became more dynamic, with globalization, deregulation, and technological change increasing the competitive pressures and risks faced by workers. Given these developments, it is not clear that the economic environment facing individual households was in fact more stable during this period. Thus, to the extent that one is interested in household economic security, one is compelled to consider micro data. Accordingly, a large literature has developed that directly examines the volatility of earnings and income at the household level. While income volatility is not the same thing as the risk or uncertainty faced by households, changes in volatility are likely to be associated with changes in risk and uncertainty. ...
To summarize our results, we estimate that the volatility of household income—as measured by the standard deviation of two-year percent changes in income—increased about 30 percent between the early 1970s and the late 2000s. The rise in volatility did not occur in a single period but represented an upward trend throughout the past several decades; it occurred within each major education and age group as well. Yet, the run-up in volatility was concentrated in one important sense: It stemmed primarily from an increasing frequency of very large income changes rather than larger changes throughout the distribution of income changes.
Turning to the components of income, we estimate notable increases in the volatility of labor earnings and transfer income and a small increase in the volatility of capital income. Household labor earnings (combining earnings of heads and spouses before estimating volatility at the household level) became more volatile even though the volatility of individual earnings (heads and spouses taken as individual observations) edged down. The explanation is that women’s earnings became less volatile while men’s earnings became more volatile, and the latter matters more for household earnings because men earn more than women on average. We show that rising volatility in men’s earnings owes both to rising volatility in earnings per hour and in hours worked, though our interpretation could be affected by changes in PSID methodology. And we demonstrate that earnings shifts between household members, as well as shifts in market income and transfer income, provide only small offsets to each other. ...
Wednesday, January 16, 2013
Jonathan Portes (he also provides discussion of each of these points):
European labor markets: six key lessons from the Commission report, by Jonathan Portes: I haven't always been complimentary about the European Commission - either its economic analysis or its policy advice. So it's nice to be able to be wholeheartedly positive about the excellent report "Employment and Social Developments in Europe 2012"...
The report is really worth reading. But it's close to 500 pages, and the main messages deserve as wide an audience as possible, so I thought I'd try to highlight them with some commentary. To my mind, the key ones are the following:
1. Economic weakness in Europe, and the consequent rise in unemployment, are mostly to do with a lack of aggregate demand, which in turn is the result of mistaken macroeconomic policies - especially aggressive fiscal consolidation...
2. Although financial markets may have stabilized - who knows for how long - things are getting worse, not better, in the real economy of the crisis countries...
3. Countries with more generous welfare states, but also more flexible labor markets, have fared best...
4. Following on from this, structural reforms in labor markets are required in many countries - but they need to be based on evidence! Segmented labor markets are a problem and raise youth unemployment...
..and even in recession, minimum wages at a sensible level do more good than harm. ...
5. Where they were allowed to operate, the "automatic stabilizers" worked...(in both macroeconomic and social terms)...
...while where they were overridden, in the pursuit of "self-defeating austerity", things have got worse...
6. Latvia, Ireland (and even Estonia) may look like "success stories" to some in the Commission, and perhaps to the financial markets (at present) but the reality in terms of jobs and incomes is rather different. ...
Too bad fiscal policymakers didn't do their homework and learn these lessons about austerity, social insurance, automatic stabilizers, and so on before putting harmful or ineffective policy in place (or failing to implement policy when action is called for, e.g. to reduce unemployment). Wish I thought they were doing their homework now.
Tuesday, January 15, 2013
Jeff Sachs is unhappy with the WSJ's editorial page (and not for the first time):
Wall Street Journal: Get a Fact Checker, by Jeffrey Sachs: ...I ... want to talk about fact checking. The [Wall Street] Journal editorial board is egregious in its misuse of data. It writes what it wants without fact checking. Where is the journalistic profession to call them out?
There are two editorial pieces this weekend of note. The story on "Europe's Bankrupt Welfare State" asserts that, "the European way of welfare is bankrupt." This is easy to check. Look at European countries with large welfare states, and see how they are doing in terms of debt, deficits, unemployment, and other indicators of "bankruptcy." I do this in Table 1 here comparing the US with Europe's five leading welfare states: the Netherlands, Denmark, Norway, Sweden, and Germany. ...
Looking at Table 1..., the conclusion is simple. The European welfare states tax and spend more than the US as a percent of GDP, yet also have lower budget deficits as a share of GDP, lower debt-GDP ratios, and lower unemployment rates. Note that the government sectors of Norway and Sweden have net assets rather than net debt. Some bankruptcy!
The second comment is by editorial board member Holman Jenkins, Jr. Mr. Jenkins tries to debunk global warming by writing that "the warmest year on record globally is still 1998 and no trend has been apparent globally since then."
His claim is both false and irrelevant. It is false because most data point to more recent years as being warmer than 1998. ... The claim is also irrelevant, since 1998 was an exceptionally strong El Nino (essentially, a tilt of Pacific warm water towards the west coast of Latin America). ... Comparing subsequent years to a very strong El Nino year mixes up trends and inter-annual variability. ...
The Wall Street Journal editors have failed to notice that even the climate skeptics have come around. ...
The Wall Street Journal editorial board needs a fact checker plain and simple. It's a major paper, with excellent news coverage, and should not destroy its integrity by an editorial board that flouts the basic process of checking the facts.
Thursday, January 10, 2013
What causes poverty?:
Talk of ‘shirkers’ echoes Victorian past, by Tristram Hunt: ...the debate about how to cut back Britain’s spiraling social security system is ... replete with echoes of the past. The language of “workers” versus “shirkers” is a straight lift from the mid-Victorian moralism of deserving and undeserving poor. Yet the most unfortunate rhetoric involves the return of “character” as the critical determinant of poverty. ...
This was the prejudice that first spurred Charles Booth, the Liverpool shipping magnate, to investigate the causes of poverty in 1880s London. Dismissive of socialist claims of mass unemployment, he established a network of researchers to pick over the lives of the poor.
It was a pioneering sociological investigation designed to prove Booth right: that poverty was limited and the poor were poor because of their alcoholism, lust or dislike of work. ... In fact, Booth’s study revealed that circumstance not character dictated poverty. ...
Booth’s study formed an important part of that New Liberal moment when Victorian laisser faire was exchanged for an interventionist state. In its wake came national insurance and the old-age pension. ...
From a post in November, 2007 on this topic:
...During 1817 ... a group of prominent New York merchants and professionals (many of them having formerly been the principle supports of such institutions as the New York Hospital and a variety of other worthy causes) officially and quite publicly began to rethink their habit of giving. Such previously generous philanthropists as DeWitt Clinton, Thomas Eddy, and John Griscom took their cue in this from British reactionaries. In so doing, they succumbed to the rhetoric of several hard-nosed British social thinkers, most notably Thomas Robert Malthus, Jeremy Bentham, and the Scottish conservative Patrick Colquhoun.
Twenty years earlier, all three of those gentleman had been instrumental in the founding of the London Society for Bettering the Condition and Increasing the Comforts of the Poor. Despite the burden of its long-winded name, the London Society specialized in the cutting off of funds for social welfare rather than the distribution of charity. Men like Malthus, Bentham and Colquhoun believed that a distinct line must be drawn between the "deserving poor" (those hit with hard times resulting from unfortunate histories) and "undeserving paupers," the latter being the drunk, lazy and whorish of society, to whom the provision of any form of aid was a reprehensible act of facilitation.
Another key concept underpinning the logic of the London Society was the presumption (for lack of a more accurate term) that paupers outnumbered the deserving poor by a factor of about 9 to 1. In reform meetings and from church pulpits, politicians and clerics again and again cited this astonishing though unverifiable statistic, which soon became accepted as fact. In time, the public mind became convinced that a mere ten percent of London's poor were the crippled and the orphaned, while 90 percent were degenerates. For every one individual in London's slums who genuinely needed aid, popular wisdom held that there were nine who required something else entirely: intolerance, punishment and correction. As a corollary to this line of thinking, logic dictated that 90% of the charitable aid previously offered was superfluous. In turn, wallets closed, and checks stopped being written.
The London Society remained a venerable body and dominant force in British life for decades: influential in the development of such institutions as workhouses and debtors prisons. It was likewise influential, through its example, in New York and other American cities. By the end of 1817, Clinton, Eddy, and Griscom, joined by hundreds of other New Yorkers, had formed a clone organization on the banks of the Hudson: the Society for the Prevention of Pauperism (SPP).
Several months before the founding of the SPP, New York's Humane Society (which at that time specialized in helping humans rather than dogs and cats) announced rather forlornly the result of recent research revealing a startling fact: no less than 15,000 men, women and children - the equivalent of one-seventh of the city's total population - had been "supported by public or private bounty and munificence" the previous winter.
In their book Gotham, historians Edwin Burrows and Mike Wallace have eloquently described the SPP's point of view, expressed in response to the above data. In the grand tradition of the London Society, the SPP said it believed that "willy-nilly benevolence" only made things worse. "Giving alms to the undeserving poor not only undermined their independence but also drove up taxes and sapped the prosperity of the entire community." Thus, "for their good as well as everyone else's … the SPP recommended that all paupers in the city be cut off from all public assistance forthwith." Soon the Humane Society itself announced its intention to disband, in the wake of its realization that the very act of giving charity had "a direct tendency to beget, among [the citizenry] habits of imprudence, indolence, dissipation and consequent pauperism."
"Tough love" was in. Cruelty equaled kindness. Frugality equality generosity. And all three were not only cheap, but easy. A few ministers sang out against the reverse-logic of the SPP, but far more praised the organization than damned it. God himself, it seemed was on the side of self-reliance. A generation later, Social Darwinists would express a similar point of view: that the strong must be allowed to flourish, and not be hamstrung by the needs of the clawing weak. Charles Darwin's The Origin of Species would not see print until 1859. Indeed, Darwin himself was but eight years old in 1817, and would not depart on the voyage of HMS Beagle until 1831. Nevertheless, the seeds of what was to become the philosophy of Herbert Spencer (born 1820), not to mention the nearly identical philosophy of the 20th century's Objectivist saint of selfishness, Ayn Rand, were quite evident in the grand pronouncements of the London Society and its New York equivalent, the SPP. ...
I'm always amazed at how little the debate, generated in large part by ideology and the belief in false facts about the poor, has changed since the 1800s.
This is from a post in June, 2007. It's an earlier history the deserving/undeserving distinction:
... In the early mercantilist period there was an ideological continuity between the intellectual defenses of mercantilist policies and the earlier ideologies that supported the medieval economic order. The latter relied on a Christian paternalist ethic that justified extreme inequalities of wealth on the assumption that God had selected the wealthy to be the benevolent stewards of the material welfare of the masses. The Catholic church had been the institution through which this paternalism was effectuated. As capitalism developed, the church grew weaker and the governments of the emerging nation-states grew stronger. In the early mercantilist period, economic writers increasingly came to substitute the state for the medieval church as the institution that should oversee the public welfare. ...
The people could no longer look to the Catholic church for relief from widespread unemployment and poverty. Destruction of the power of the church had eliminated the organized system of charity, and the state attempted to assume responsibility for the general welfare of society. ...
Poor laws passed in 1531 and 1536 attempted to deal with the problems of unemployment, poverty, and misery then widespread in England. The first sought to distinguish between "deserving" and "undeserving" poor; only the deserving poor were allowed to beg. The second decreed that each individual parish throughout England was responsible for its poor and that the parish should, through voluntary contributions, maintain a poor fund. This proved completely inadequate, and the pauper problem grew increasingly severe.
Finally, in 1572 the state accepted the principle that the poor would have to be supported by tax funds and enacted a compulsory "poor rate." And in 1576 "houses of correction" for "incorrigible vagrants" were authorized and provisions made for the parish to purchase raw materials to be processed by the more tractable paupers and vagrants. Between that time and the close of the sixteenth century, several other poor-law statutes were passed.
The Poor Law of 1601 was the Tudor attempt to integrate these laws into one consistent framework. Its main provisions included formal recognition of the right of the poor to receive relief, imposition of compulsory poor rates at the parish level, and provision for differential treatment for various classes of the poor. The aged and the sick could receive help in their homes; pauper children who were too young to be apprenticed in a trade were to be boarded out; the deserving poor and unemployed were to be given work as provided for in the act of 1576; and incorrigible vagrants were to be sent to houses of correction and prisons.
From the preceding discussion it is possible to conclude that the period of English mercantilism was characterized by acceptance, in the spirit of the Christian paternalist ethic, of the idea that "the state had an obligation to serve society by accepting and discharging the responsibility for the general welfare.” The various statutes passed during this period "were predicated upon the idea that poverty, instead of being a personal sin, was a function of the economic system. They acknowledged that those who were the victims of the deficiencies of the economic system should be cared for by those who benefited from it. ...
However, as noted above, the view that the poor "were the victims of the deficiencies of the economic system" died out, and was replaced by the idea the character problems are the main reason people are poor. This variation in attitudes about the poor -- it's the system, it's the individual -- goes back and forth over time, and we are currently seeing an attempt from the right to re-impose older Victorian attitudes -- and with some success (I recently wrote about the blame the individual versus blame the system distinction and how it has changed during the recession, see the end of this post).
Friday, January 04, 2013
Did Democrats win:?
Battles of the Budget, by Paul Krugman, Commentary, NY Times: ...our two major political parties are engaged in a fierce struggle... Democrats want to preserve the legacy of the New Deal and the Great Society — Social Security, Medicare and Medicaid — and add to them what every other advanced country has: a more or less universal guarantee of essential health care. Republicans want to roll all of that back, making room for drastically lower taxes on the wealthy. Yes, it’s essentially a class war.
The fight over the fiscal cliff was just one battle in that war. It ended, arguably, in a tactical victory for Democrats. The question is whether it was a Pyrrhic victory that set the stage for a larger defeat.
Why do I say that it was a tactical victory? Mainly because of what didn’t happen: There were no benefit cuts. This was by no means a foregone conclusion...
There were also some actual positives from a progressive point of view. Expanded unemployment benefits were given another year... Other benefits to lower-income families were given another five years... Oh, and not only did Republicans vote for a tax increase for the first time in decades, the overall result of the tax changes ... will be a significant reduction in income inequality...
So why are many progressives — myself included — feeling very apprehensive? Because ... the G.O.P. retains the power to destroy, in particular by refusing to raise the debt limit — which could cause a financial crisis. And Republicans have made it clear that they plan to use their destructive power to extract major policy concessions.
Now, the president has said that he won’t negotiate on that basis, and rightly so. Threatening to hurt tens of millions of innocent victims unless you get your way ... shouldn’t be treated as a legitimate political tactic.
But will Mr. Obama stick to his anti-blackmail position as the moment of truth approaches? He blinked during the 2011 debt limit confrontation. And the last few days of the fiscal cliff negotiations were also marked by a clear unwillingness on his part to let the deadline expire. Since the consequences of a missed deadline on the debt limit would potentially be much worse, this bodes ill for administration resolve in the clinch.
So, as I said, in a tactical sense the fiscal cliff ended in a modest victory for the White House. But that victory could all too easily turn into defeat in just a few weeks.
Saturday, December 29, 2012
Why Next to No Political Reaction to the Second Gilded Age?, by Brad DeLong: ...During the Gilded Age of the 1890s and 1900s you had strong political movements saying "something is going remarkably wrong with this, this isn’t the country we thought we were going to live in"...
Brad DeLong: ...As a result in the First Gilded Age you had two political movements. The Democratic, left, farmer, labor, semi-socialist, Populist Movement on the one hand. The mixed bipartisan Democratic and Republican, urban, Progressive Movement on the other. Both of them were desperately eager to change America, to repair the flaws of the Gilded Age, to reduce inequality, to make the economy work for everybody--or at least for every white guy--and even to grant women the vote.
They wanted this so much so that someone like Republican President Theodore Roosevelt--as aggressively a partisan an animal as you would ever see--would place his loyalty to the Republican cause second to his loyalty to his progressive principles for American reform. He was happy denouncing Democrats as communist anarchists, but equally happy denouncing rich republicans as "malefactors of great wealth" who desperately needed to be controlled.
Theodore Roosevelt wove his political career out of being head of the Republican party and head of the Progressive Movement. And at the end non-Progressive Republican President Taft simply offended him one time too many, and Roosevelt decided to blow up the Republican Party and hand the presidency to Woodrow Wilson from 1912-1920.
That was the history of America from 1880-1920 or so. After 1920 you do get a Republican Gilded Age resurgence under Harding, Coolidge, Hoover--very corrupt, especially under Harding. But by the late 1920s Progressivism is rising again--even Hoover is running as a Progressive. Then when the Great Depression comes Franklin Roosevelt comes in and he takes the entire progressive agenda off the shelf and promptly begins to implement it.
We haven’t had anything like that over the past thirty years.
And here I’m simply going to throw up my hands and say that I don't know why.
It’s in a great mystery to me. As an economic historian I like to look at political economic patterns from the past and to say we should learn from these and generalize them and take them as providing some insight into the present and the future. In general, we economic historians are extraordinarily successful. There are lots of lessons to be drawn from the first age of globalization for the second. There are lots of lessons to be drawn from the high school-ization of America for the college-ization of America and for education elsewhere in the world. There are lots and lots of lessons to be drawn from the Great Depression for today.
But the political economy of Gilded Ages? Why the first Gilded age produces a Populist and a Progressive reaction and the second, so far, does not? There I throw up my hands and say that my economic historian training betrays me. I have no clue as to what is going on here.
(This is speculative, but I'll give it a shot) I would certainly start by noting the different levels of initial national wealth -- we started from a much higher base this time -- and the presence of social insurance. If we didn't have food stamps, unemployment compensation, and other private and public social backstops to help people through tough times, and a relatively high level of initial wealth to rely upon, the effects would have been much more severe and the response to the Great Recession might have been more like the response to the Great Depression. But as Brad notes, it wasn't just the reaction to the Great Depression that produced a populist movement, it existed before the Great Depression hit. I think you can see elements of a populist movement in recent decades, but it's nowhere as strong as prior to the Great Depression. Again, I think part of this is different levels of initial wealth and the existence of a large middle class, but maybe there is something else too.
I think it matters a lot whether we think of inequality as arising from a problem in the system as a whole, or as the result of individual failures. When people think it's the system as a whole -- the rich and powerful are scheming to hold everyone else down (e.g. robber barons) -- mass movements are more likely than when it is viewed as simply the failings of individuals. I think many people viewed the last few decades as a time of great opportunity. If you weren't rich, or at least doing very well, it was because you hadn't tried hard enough. Anyone who wanted a decent job could get one if they were willing to put out the requisite effort. The Great Recession changed that somewhat, but even now many people want to blame our problems on the poor decisions of individuals, some even try to cast blame for the recession on the decisions of low income households to try to buy houses, rather than some inherent failure within the capitalist system.
Let me back up. Prior to the Great Depression, there was a battle between those who believed the system was at fault (and hence pushed populist remedies) versus those who thought some people were simply less capable and destined to be poor no matter what we did to help them -- it was the duty of the head of the household to provide for their family, and those who didn't were looked down upon. They must not be trying hard enough, they were lazy, etc. But the Great Depression made it clear that trying hard wasn't always sufficient. People who had been able to support their families their whole lives, and were determined to do so during the depression no matter what it took, couldn't. It wasn't a matter of individual effort, or how hard one tried, these was simply no work to be found for great numbers of "upstanding" citizens.
If the people who were known to be willing to do whatever it took to provide for their families could not, then it must be the system, not the individual that was a fault and this was a key idea that allowed social insurance to be passed after the Great Depression. The money wasn't going to no good, lazy people who didn't deserve it, it was going to people who deserved to be helped when the capitalist system, which was known to cycle ruthlessly through booms and busts, let them down. People needed insurance against events that were out of their individual control.
This time around, it came as a bit of a shock that they system could still let us down. Many people thought we were beyond Great Depressions/Recessions -- hence the claim above that most failings prior to our recent troubles were viewed as individual rather than the fault of the system. But even though people began to realize it wasn't always a matter of individual effort and ability, since we already have many social insurance protections in place the outcry this time isn't to produce a bunch of new social insurance programs to protect the vulnerable as it was after the Great Depression. Instead, it led to a renewed realization of the value of social insurance (at least I hope this is true) and the fight presently is to maintain or expand what we already have versus scaling back our social protections. I think that, without the Great Recession, our social insurance programs would be even more vulnerable than they are presently. Thus, unlike Brad, I think there have been noticeable effects in shoring up "populist" support for these types of programs. But where I agree, and what I see as puzzling, is why the reaction from those who depend upon these programs hasn't been even stronger. Why are these programs vulnerable at all?
Wednesday, December 26, 2012
Bruce Bartlett argues conservatives should support the welfare state:
A Conservative Case for the Welfare State, by Bruce Bartlett, Commentary, NY Times: At the root of much of the dispute between Democrats and Republicans over the so-called fiscal cliff is a deep disagreement over the welfare state. Republicans continue to fight a long-running war against Social Security, Medicare, Medicaid and many other social-welfare programs that most Americans support overwhelmingly and oppose cutting. ...
This is foolish and reactionary. Moreover, there are sound reasons why a conservative would support a welfare state. Historically, it has been conservatives like the 19th century chancellor of Germany, Otto von Bismarck, who established the welfare state in Europe. They did so because masses of poor people create social instability and become breeding grounds for radical movements.
In postwar Europe, conservative parties were the principal supporters of welfare-state policies in order to counter efforts by socialists and communists to abolish capitalism altogether. The welfare state was devised to shave off the rough edges of capitalism and make it sustainable. Indeed, the conservative icon Winston Churchill was among the founders of the British welfare state.
American conservatives, being far more libertarian than their continental counterparts, reject the welfare state for both moral and efficiency reasons. It creates unhappiness, they believe, and inevitably becomes bloated, undermining incentives and economic growth.
One problem with this conservative view is its lack of an empirical foundation. Research by Peter H. Lindert of the University of California, Davis, shows clearly that the welfare state is not incompatible with growth while providing a superior quality of life to many of those left to sink or swim in America. ...
There are many ... ways ... in which what the conservatives call bloated European welfare states are actually very efficient. ...
American conservatives routinely assert that the people of Europe live in virtual destitution because of their swollen welfare states. But according to a commonly accepted index of life satisfaction, many heavily taxed European countries rank well above the United States...
If conservatives want to support the welfare state out of the desire to defend capitalism from "socialists and communists" -- to defend it against the instability that high degrees of inequality cause -- no problem, though it's interesting that they would acknowledge that the system itself can lead to societal inequities that are so dangerous the government needs to intervene to fix them. I prefer the efficiency argument (which is not to say that the other argument has no merit, it does). When there are substantial market failures -- the type that exist in retirement and health markets for example -- the government can make these markets work better through rules, mandates, and other regulatory interventions, or it can provide the services itself. Whether a heavily regulated private market will work better than the government providing services itself in the presence of substantial market failures is something that can be debated, and in general the lines aren't always clear. But for health and retirement markets it does appear that direct government provision works better than heavily regulated markets (i.e. "privatization"). In any case, the broader point is that the government provision of social insurance either directly or indirectly can be justified on an efficiency argument, i.e. as a means of overcoming market failures that prevent the private sector from providing these important goods and services in sufficient quantities at the lowest possible price.
Saturday, December 22, 2012
Barney Frank argues that, when it comes to defense spending, we should "spend less, and liberals should not flinch from that position." The essential point, I think, is that "the major trade-off in putting together a total deficit reduction package is between the military and health care," and, though he does note this in a couple of places, I wish that point had been stressed more in the article (the essay is much, much longer):
The New Mandate on Defense, by Barney Frank, Democracy: There were so many encouraging signs for liberals in the election results this year that one of the most significant has been overlooked. For the first time in my memory, a Democratic candidate for President argued for less military spending against a Republican candidate who called for great increases—and the Democrat won. ...
Because so much of that spending stems from overreach advocated by those who believe that America should be the enforcer of order everywhere in the world—and because we subsidize our wealthy European and Asian allies by providing a defense for them...—there has been increasing conservative support for reining in the military budget. Ron Paul, who goes far beyond most liberals in his eagerness to impose severe military cuts, was a popular figure with a significant base of GOP support not despite taking this position but in part because of it.
Earlier this year, for the first time that I can recall, a majority of the House of Representatives voted to reduce the military appropriation recommended by the House Appropriations Committee. The cut was only $1.1 billion—less than it should have been—but it ... passed... with the support of ... a significant minority of Republicans...
A realistic reassessment of our true national security needs would mean a military budget significantly lower... That is, by next year, we no longer should be forced to spend additional funds—close to $200 billion a year at their peak—in Afghanistan and Iraq. Additionally, we can reduce the base budget by approximately $1 trillion over a ten-year period ... while maintaining more than enough military strength...
Even with the revenue increase we can achieve by raising taxes on the wealthy, serious deficit reduction must come in part from reducing military spending beyond what the President proposes, unless we make very deep cuts in the nonmilitary parts of the budget. ... Given the numbers involved, the major trade-off in putting together a total deficit reduction package is between the military and health care...
To be clear, this is not an argument against America continuing to be the strongest nation in the world. ... That said, being the strongest nation in the world can be achieved much less expensively than at current levels. Obama ... underestimates the extent to which the public is willing to support even further reductions, and I believe that he may appear to be overly influenced by being told that as President, he has the duty to continue to lead the indispensable nation.
The United States was indispensable in 1945 and for many years thereafter... But things have changed. We can no longer afford ... extending a military umbrella over many allies on whom it is not raining—and who can well afford their own protective gear if it does. ...
This all means that a major political task going forward for liberals is pushing for further reductions in military spending, an objective that we now know is not only socially and economically necessary but also politically achievable.
Important social services versus tax cuts for the rich and military spending. Those with unmet needs and little social/economic power versus the wealthy and the military. I suppose in some sense, given who's in this battle, it's remarkable there's been any headway at all. But there needs to be more progress on protecting the vulnerable.
Thursday, December 20, 2012
I guess Jeff Sachs hasn't gone completely off the rails:
How the Right Is Wrong About Happiness, by Jeff Sachs, Commentary, Huffington Post: Today's op-ed page of the Wall Street Journal sheds more light on how conservative elites thoroughly misunderstand and misrepresent the role of government in a decent society. Arthur C. Brooks, president of the American Enterprise Institute, a conservative think tank, makes an empirical claim that government social spending lowers happiness of the recipients by making them "dependent on unearned resources." ...
The claim is false because the countries that have the highest spending on social programs are far and away the happiest. ... They end up with economic prosperity that is broadly shared, very low poverty, low unemployment, social fairness, lower health care costs than in the United States, longer vacation times, guaranteed maternity and paternity leave, better pre-school and many more benefits that make people happy, and help them to raise happier and healthier children. ...
Brooks reports that going on the welfare rolls is correlated with feeling "inconsolably sad over the past month." Well, duh. Perhaps, Mr. Brooks, their life has taken a hard turn. If the sadness were merely the result of inscribing in a welfare program, they wouldn't do it. ...
Second, Brooks terms social programs as unearned income. That's a pretty grotesque generalization... Social security recipients have ... been making payroll contributions; the same with Medicare recipients. Unemployed workers collecting UI ... have been making contributions into the unemployment insurance system... To deem these programs to be "unearned income" is nasty, false, and demeaning.
If we were to do a serious look at whose income is unearned, we would surely start at the top, not at the bottom. CEO salaries, Wall Street bonuses, lobbyists perks... On this I'm with Brooks. Let's take this unearned income away from the super-rich through proper taxation and regulation, and to follow Brooks' logic, help make the rich happier as we close the budget deficit as well.
Saturday, December 15, 2012
pgl at Econospeak:
The tax cuts can also be viewed as a loan from the Social Security Trust Fund that didn't pay off as promised.
Kevin Drum on Why the Social Security Trust Fund is Real, by pgl: Kevin Drum has a short and sweet analogy for the position that the assets in the Social Security Trust Fund are real:Now, suppose this surplus had been invested in corporate bonds. What exactly would that mean? It means that workers would be giving money to corporations, who would turn around and spend it. In return, the Social Security trust fund would receive bonds that represent promises to repay the money later out of the company's cash flow. In effect, it gives workers a claim on the cash flows of the company at a later date in time. When that time comes, the company would have to pay up, which would make it less profitable. If the company was already unprofitable, it would make their deficit even worse. If that's what had happened, there would be no confusion about the trust fund. Everyone agrees that corporate bonds are real things, and that the corporations who sell them have an obligation to pay them back, even though it means less money for shareholder dividends.
He then substitutes treasury bonds for corporate bonds and draws the same conclusion. QED! While I agree, let me try to offer the rightwing rebuttal, which begins with the proposition that the general fund is essentially bankrupt. Is it and why? Well – it is true that the Reagan years cut taxes on the very rich just as it raised payroll taxes. It is also true that President Reagan increased defense spending. Although we had the peace dividend and some reversals of those tax cuts during the 1990’s, George W. Bush put us back on the path of high defense spending and low taxes on the rich in 2001. The Republican Party seems to believe that we must forever have high defense spending and low taxes on the rich. Well if that is true, it is analogous to paying high dividends to corporate shareholders even as corporate profits are well below the dividend policy. But do we really have to accept this Republican belief system? No we can honor these promises to pay Social Security benefits if we as a nation are willing to tell the rich to pay higher taxes and tell the military industrial complex that it gets less largesse. But I guess some Republicans see the promises of low tax rates for the rich and continuing largesse for the military industrial complex as sacrosanct, which of course leads them to conclude that the problem is those promises to Social Security beneficiaries.
Friday, December 14, 2012
John Makin of the American Enterprise Institute says that "trillion-dollar deficits are sustainable for now, unfortunately." I don't agree with everything he says -- the "unfortunately" in the title for one, his fear of inflation and the increase in debt servicing costs that come with it for another (though he is not saying inflation is just around the corner like some others have claimed) -- but I appreciate that he is trying to play it straight rather than support the nonsense other Republicans have tried to foist upon the public:
Trillion-dollar deficits are sustainable for now, unfortunately, by John H. Makin: Congress is attempting, unsuccessfully, to reduce “unsustainable” deficits and debt accumulation by engineering “crises” that are meant to force politically challenging action on spending cuts (entitlements) and tax increases (loophole closing, higher tax rates on the “rich”). The mid-2011 debt-ceiling crisis fiasco and the upcoming year-end “fiscal cliff” are striking examples of this dangerous tactic. ...
The tactic of threatening to go over the fiscal cliff will fail ... because deficits have been, and will continue to be for some time, eminently sustainable. The Chicken Little “sky is falling” approach to frightening Congress into significant deficit reduction has failed because the sky has not fallen. Interest rates have not soared as promised... Two percent inflation means that the real inflation-adjusted cost of deficit finance averages –1.5 percent...
The debt-to-GDP ratio is not a reliable guide for gauging the sustainability of deficits, notwithstanding the Reinhart and Rogoff warning...
The United States Is NOT Greece ... The hyperbolic claim that the United States is becoming Greece because of the absence of dramatic progress on deficit and debt reduction is unfortunately ridiculous. ...
The real danger facing American policymakers is, contrary to the cries of imminent “crisis” and “unsustainable” deficits and debt accumulation, the sustainability of trillion-dollar deficits. Eventually, probably much later than most pundits claim if the experience of Japan is any guide, the Federal Reserve’s monetary accommodation of US government debt accumulation, largely aimed at sustaining the growth of outlays on entitlements that do not support economic growth, will cause inflation to rise. ...
Once inflation rises and the Fed is forced to tighten, borrowing costs for both the government and private sectors will rise. Growth measured in real, constant-dollar terms will fall relative to real, inflation-adjusted interest rates along with tax revenues, and the US debt-to-GDP ratio will rise rapidly. ...
We certainly disagree on how to solve the problem, i.e. whether to rely upon tax increases or cuts to important social programs, and on the pace of deficit reduction (though he calls for more gradual reduction than most), but I appreciate his willingness to acknowledge, as Krugman noted today, that "We are not having a debt crisis."
(I should also note, yet again, that with a "real inflation-adjusted cost of deficit finance [that] averages –1.5 percent," we ought to be investing heavily in critical infrastructure to stimulate output and employment, and to increase our future growth prospects.)
Sunday, December 02, 2012
Jamie Galbraith's view on wage stagnation might surprise you:
Muddling Towards the Next Crisis: I think there is a tendency on the left to underestimate the success of the programs that created and sustained the middle class and the middle class mentality. There’s a tendency to focus on some statistical aspects of what’s happened to wages—median wages in particular—and to focus less on the role played by Medicaid, Medicare, Social Security, the housing programs, public education, and support for higher education, all of which gave us a population that had the attributes of a middle class society.
The story that is often told about what’s happened to factory jobs, and what’s happened to wage rates, is not a good way of getting at the threat to that existence. The typical story is that median wages peaked in 1972 and have been stagnant and falling since then. As a result, it must be the case that people who are working now are much worse off than they were ten, fifteen, twenty years ago. That’s not an accurate story—at least not up until the crisis in 2008—because over that period the labor force became younger, more female, more minority, and more immigrant. All of these groups start at relatively low wages, and they all then tend to have upward trajectories. So there’s no reason to believe that life was getting worse for members of the workforce in general. On the contrary, for most members of the workforce it was still getting better. Plus they had the benefit of technical change and improvement in the other conditions of life.
The real threat to the middle class is not there, it’s in the erosion of the programs I just mentioned. That is to say, it’s in the attack on the public schools, it’s in the squeeze on higher education, it’s in the threat to Social Security. When you look at housing, you have a very large unambiguous loss. Millions of people have been displaced, but many, many more have lost the capital value of their homes. They won’t be able to sell and retire on the proceeds.
So I think there is a threat to the middle class, but if I were talking about it in political terms, I wouldn’t be giving an abstract statistical picture of wages. This doesn’t connect to people’s experiences. If I were designing the boilerplate rhetoric of a popular movement, I would take a blue pencil to these statistical formulations. I don’t like the stagnant median wage argument—I think it obscures what actually happened. And I don’t particularly care for the “one percent” argument. I understand it has a certain power, but one can be much more precise about what it is you want to attack, and what it is you want to preserve and to build. I would cut to the chase: we need to tear down the financial sector and rebuild it from scratch in a very different way. ...
Tuesday, November 27, 2012
Robert Reich is worried:
Will Tim Geithner Lead Us Over or Around the Fiscal Cliff?, by Robert Reich: I’m trying to remain optimistic that the President and congressional Democrats will hold their ground over the next month as we approach the so-called “fiscal cliff.”
But leading those negotiations for the White House is outgoing Secretary of Treasury Tim Geithner, whom Monday’s Wall Street Journal described as a “pragmatic deal maker” because of “his long relationship with former Treasury Secretary Robert Rubin, for whom balancing the budget was a priority over other Democratic touchstones.” ...
Both Rubin and Geithner are hardworking and decent. But both see the world through the eyes of Wall Street rather than Main Street. I battled Rubin for years in the Clinton administration because of his hawkishness on the budget deficit and his narrow Wall Street view of the world.
During his tenure as Treasury Secretary, Geithner has followed in Rubin’s path — engineering a no-strings Wall Street bailout that didn’t require the Street to help stranded homeowners, didn’t demand the Street agree to a resurrection of the Glass-Steagall Act, and didn’t seek to cap the size of the biggest bank, which in the wake of the bailout have become much bigger. In an interview with the Journal, Geithner repeats the President’s stated principle that tax rates must rise on the wealthy, but doesn’t rule out changes to Social Security or Medicare. And he notes that in the president’s budget (drawn up before the election), spending on non-defense discretionary items — mostly programs for the poor, and investments in education and infrastructure — are “very low as a share of the economy relative to Clinton.” If “pragmatic deal maker,” as the Journal describes Geithner, means someone who believes any deal with Republicans is better than no deal, and deficit reduction is more important than job creation, we could be in for a difficult December.
Not sure if this will make you feel more confident, but a recent post on the Treasury's blog from Jason Furman asserted that "Increasing Taxes on Middle-Class Families Will Hurt Consumer Spending." Unfortunately, it didn't say much about Social Security and Medicare. I am worried too.
Sunday, November 25, 2012
Because of the way the Social Security program is funded -- through a payroll tax on workers along with an employer contribution -- many people believe there is an account for them at some government agency holding those contributions, or at least giving them credit for them, and that they will be able to collect their contributions when they retire. It's their money, collected from them monthly, and no matter their income level they have a right to get that money back when they retire. Try telling them that they don't. Even those people who understand that if their income is high enough they may not receive payments equal to all they put in get something back -- it's there for them no matter what -- and this increases support for the program.
But if we change the funding so that payments for Social Security come out of the general fund -- the money the government collects through taxes for all purposes -- and impose means testing (i.e. phase out the payments once income is high enough), the link between contributions and benefits would be broken and I fear support for the program would be broken as well. It would become another welfare program, and attacked. When programs are supported through the general fund there is competition for funding, there is never enough money to go around, and it wouldn't be long before the people in power, or with lots of influence over those in power (who don't really need Social Security in most cases) would argue that the money is best used elsewhere.
I am far from the first person to make this point:
Ross Douthat Argues that Social Security Would be Easier to Cut If It Were Changed from a Social Insurance Program to a Welfare Program, by Dean Baker: Ross Douthat argues convincingly that if we eliminated the link between contributions and benefits it would be much easier politically to cut Social Security. Of course he thinks ending the link would be a good idea for that reason, but his logic is certainly on the mark, people will more strongly protect benefits that they feel they have earned. ...
The payroll tax certainly can cover the program's expenses. In fact, had it not been for the upward redistribution of income over the last three decades, which nearly doubled the share of wage income going over the cap on taxable income, the projected 75-year shortfall would be about half of its current level.
Even with the current projected shortfall, if ordinary workers shared in projected productivity growth over the next three decades, a tax increase equal to 6 percent of their wage growth over this period would be sufficient to make the program fully solvent. The problem is clearly the policies that led to the upward redistribution of income..., not Social Security.
It is worth pointing out that when Douthat proposes "means-testing for wealthier beneficiaries," his notion of wealthy means school teachers and firefighters, not Bill Gates and Mitt Romney. ...
Peggy Noonan said today that Republicans will accept tax increases if there is significant entitlement reform. Assuming she can be believed (a rather heroic assumption), and that she speaks for a significant portion of the Republican Party in saying this (which is probably true, so I'm a bit less embarrassed about quoting her), it's clear that Republicans are going to demand cuts to programs like Social Security as a condition of raising taxes.
Democrats need to remember who won the election, and that despite their act to the contrary, the Republicans are not the ones calling the shots at this point. Democrats have considerable leverage, and they need to use it to protect programs their core constituency values highly. Social Security is at the top of the list.
Monday, November 19, 2012
James Kwak argues that "Forty years from now, America will be twice as rich on average as we are today. But most of that wealth will go to the very richest households. We only have a budget crisis if they refuse to pay higher taxes:
The U.S. Does Not Have a Spending Problem, We Have a Distribution Problem, by James Kwak: In this season of fiscal silliness, many people are saying that we cannot afford our current entitlement programs. They shake their heads solemnly and say that Social Security and Medicare were well-intentioned ideas, but we simply do not have the money to pay for them and there is no escaping the need for "structural changes."
Hogwash. ... The federal government exists to serve the American people, not the other way around. The real question is whether we as a society can afford our current level of entitlement spending.
The answer is obviously yes. ...
Sunday, November 18, 2012
America’s Fiscal Cliff Dwellers, by Simon Johnson, Commentary, Project Syndicate: In early 2012, Federal Reserve Chairman Ben Bernanke used the term “fiscal cliff” to grab the attention of lawmakers and the broader public. Bernanke’s point was that Americans should worry about the combination of federal tax increases and spending cuts that are currently scheduled to begin at the end of this year.
But there is not really any kind of “cliff” in the sense that if you stepped over the edge, you would fall fast, land on something hard, and not get up for a long time. In the modern US economy, the scheduled changes constitute more of a fiscal “slope” – meaning that the full effect of the tax increases would not be felt immediately (income withholding takes time to adjust), while the spending cuts would also be phased in (the government has some discretion regarding implementation). This slope offers President Barack Obama a real opportunity to restore the federal government’s revenue base to what it was in the mid-1990’s.
The choice of words to describe America’s fiscal situation matters, given the hysteria that has been whipped up in recent months, primarily by people who want to make big cuts in the country’s two main entitlement programs, Social Security and Medicare. Their logic is that if we are about to rush off a cliff, we need to take extreme measures. And cutting pensions and health care for the elderly certainly qualifies as extreme – as well as completely inappropriate and unnecessary.
If, instead, the US faces a fiscal slope, then people who refuse to consider raising taxes – namely, Republicans in the US Congress’s House of Representatives – have a very weak hand indeed. ...[more]...
Friday, November 16, 2012
Raising the eligibility age for Social Security and Medicare is *not* the answer:
Life, Death and Deficits, by Paul Krugman, Commentary, NY Times: America’s political landscape is infested with many zombie ideas... And right now the most dangerous zombie is probably the claim that rising life expectancy justifies a rise in both the Social Security retirement age and the age of eligibility for Medicare... — and we shouldn’t let it eat our brains. ...
Now, life expectancy at age 65 has risen... But the rise has been very uneven..., any further rise in the retirement age would be a harsh blow to Americans in the bottom half of the income distribution, who aren’t living much longer, and who, in many cases, have jobs requiring physical effort that’s difficult even for healthy seniors. And these are precisely the people who depend most on Social Security. ...
While the United States does have a long-run budget problem, Social Security is not a major factor... Medicare, on the other hand, is a big budget problem. But raising the eligibility age, which means forcing seniors to seek private insurance, is no way to deal with that problem. ...
What would happen if we raised the Medicare eligibility age? The federal government would save only a small amount of money, because younger seniors are relatively healthy... Meanwhile, however, those seniors would face sharply higher out-of-pocket costs. How could this trade-off be considered good policy?
The bottom line is that raising the age of eligibility for either Social Security benefits or Medicare would be destructive, making Americans’ lives worse without contributing in any significant way to deficit reduction. Democrats ... who even consider either alternative need to ask themselves what on earth they think they’re doing.
But what, ask the deficit scolds, do people like me propose doing about rising spending? The answer is to do what every other advanced country does, and make a serious effort to rein in health care costs. Give Medicare the ability to bargain over drug prices. Let the Independent Payment Advisory Board, created as part of Obamacare to help Medicare control costs, do its job instead of crying “death panels.” (And isn’t it odd that the same people who demagogue attempts to help Medicare save money are eager to throw millions of people out of the program altogether?) ...
What we know for sure is that there is no good case for denying older Americans access to the programs they count on. This should be a red line in any budget negotiations, and we can only hope that Mr. Obama doesn’t betray his supporters by crossing it.
Thursday, November 15, 2012
Ezra Klein, then Paul Krugman:
From the 47% to ‘gifts’: Mitt Romney’s ugly vision of politics, by Ezra Klein: During the campaign, Mitt Romney repeatedly promised seniors that he’d restore President Obama’s $716 billion in Medicare cuts. He promised them that, unlike Obama, he wouldn’t permit a single change to Medicare or Social Security for 10 years. ... While the rest of the country was trying to pay down the deficit and prioritize spending, they’d be safe. He also promised the rich that they’d see a lower overall tax rate... Oh, and let’s not forget his oft-stated intention to roll back the Dodd-Frank financial reforms and replace them with…something.
Keep all that in mind when you hear Romney blaming his loss on “the gifts” that Obama reportedly handed out to “the African-American community, the Hispanic community and young people.” Romney was free with the gifts, too, and his promises to seniors and to the rich carried a far higher price tag than any policies Obama promised minorities or the young. But to Romney, and perhaps to the donors he was speaking to, those policies didn’t count as “gifts.”...
Romney really does appear to believe that there’s a significant portion of the electorate that’s basically comprised of moochers. That’s Romney’s political cosmology: The Democrats bribe the moochers with health care and green cards. ...
When Romney thinks he’s behind closed doors and he’s just telling other people like him how politics really works, the picture he paints is so ugly as to be bordering on dystopic. It’s not just about class, but about worth, and legitimacy. His voters are worth something to the economy — they’re producers — and they respond to legitimate appeals about how to best manage the country. The Democrats’ voters are drags on the economy — moochers — and they respond to crass pay-offs.
Romney doesn’t voice these opinions in public. He knows better. But so did the voters. ...
The Moocher Majority, by Paul Krugman: Lots of people having fun with Mitt Romney’s post-election diagnosis, which is that President Obama played dirty: he won peoples’ votes by — horrors — actually making their lives better...
Gosh. People who will have health insurance under Obama but would have lost it under Romney voted for Obama. What’s wrong with those people?
But as many commentators have pointed out, Romney was just encapsulating the prevalent worldview on the right. Some of us see an increasingly, radically unequal America, with rising inequality actually reinforced by public policy, with tax rates on the rich lower than they have been in many decades and the overall redistributive effect of government down substantially since the 1970s. But the right sees an entitlement epidemic, in which the big problem is that too many people are getting free stuff.
It’s important to understand the roots of this stuff. It began as a deliberate appeal to racism, with explicit condemnation of Those People as welfare moochers. Then it became more coded...
What Mitt Romney is now complaining about is the horrifying reality that ... anti-government rhetoric is turning into a way to lose elections rather than win them.
And I don’t think the Republican party as currently constituted can change this: after 45 years of the Southern strategy, this stuff is what defines the party’s soul.
How will the GOP respond to Romney's loss? With soul-searching or entrenchment? I think the Republican Party will change with time, it has to, and there are younger voices ready to lead the Party to new ground. But the old guard will argue it was the abandonment of traditional principles that caused the loss, and resist the suggestion that the maker-taker, welfare moochers type rhetoric was harmful. The old guard still holds most of the power, and it is not yet ready to step aside.