Dean Baker's Blog, page 301

Pension Returns Depend on the Start Point

A New York Times article on New York City's pension funds implied that its assumed rate of return going forward is too high based on past returns over a highly selective period:

"But excessive optimism can lead to financial disaster, because regular shortfalls could ultimately leave the city unable to fulfill its required payouts. For years, the investment return expectation was set at 8 percent. In reality, the system’s returns have often fallen well short of that, earning just 2 percent on...

Trade, Wages, and Jobs

I see that Gary Hufbauer and Cathleen Cimino have responded to my earlier post criticizing their colleague Adam Posen's Financial Times column touting the wonders of trade. They cover a lot of ground in their response, but I will just address two main points:

1) The pattern of trade that we have put in place over the last three decades has been a major factor reducing the wages of most of the work force (the 70 percent that lack college degrees).

2) The large trade deficit that we have at pre...

New Drugs Competing With Sovaldi Is Evidence of the Inefficiency of the Patent System

The NYT tells us the good news on the cost of giving people Sovaldi for treating Hepatitis C. First, the annual costs are likely to fall in the years ahead as the backlog of people with the disease are cured and the numbers needing treatment declines sharply. Second, new effective drugs will come on the market and compete with Sovaldi, driving the price down.

In a context where the government gives Savaldi a patent monopoly it is good to have multiple drugs that can provide competition. Howev...

Japan Does Not Have a Demographic Time Bomb

The "hard to get good help" crowd continue to dominate reporting at the Washington Post. An article on Japan's efforts to facilitate women returning to jobs after childbirth told readers:

"Japan is sitting on a demographic time bomb: With its low birth rate, the population is on track to shrink 30 percent by 2060, at the same time 40 percent of its citizens will hit old age."

There is no time bomb. Japan, like most countries, has seen an increasing ratio of retirees to workers. This...

Inequality: Don't Blame the Market

Zachary Goldfarb has an interesting analysis of trends in before and after-tax income inequality in the Obama years. However he is mistaken in attributing the rise in before-tax inequality to the market rather than deliberate policy choices.

For example, the big banks still exist today because the government had a policy of saving them from the market. They would have managed to put themselves into bankruptcy in 2008 without huge amounts of below market loans and implicit and explicit guaran...

Is There Any Way That Weak Employment Numbers In Europe Might Bolster Concerns That Most Economists Are Right About Government Stimulus

A New York Times article on new economic data from the euro zone noted a 0.1 percentage point rise in the unemployment rate in France. It told readers that this rise (which is almost certainly not statistically significant):

"is likely to bolster concerns that France is stuck in an economic rut and politically incapable of making changes to labor rules or putting in place other overhauls needed to improve economic performance."

There is no one quoted making this claim, it is simply an asserti...

More Fun With Budget Numbers: Frat Boy Reporting at the New York Times

The NYT gave us a prime example of frat boy budget reporting today, presenting readers with really big numbers which mean almost nothing to any of them. The article referred to the Senate passage of bills providing funding for veterans health care and transportation. It told readers:

"Prompted by the long waiting lists at veterans’ health centers and the bureaucratic efforts to hide them, the $17 billion bill aims to clean up the scandal-scarred Department of Veterans Affairs by granting...

Larry Kotlikoff Tells Us Why We Should Not Use Infinite Horizon Budget Accounting

In a New York Times column, Boston University economist Larry Kotlikoff told readers why we should not use infinite horizon budget accounting. Kotlikoff showed how this accounting could be used to scare people to promote a political agenda, while providing no information whatsoever.

For example, after telling us how much money his 94-year-old mother is drawing from Social Security and a widow's benefit from his father's job he ominously reports:

"you’ll find that the program’s unfunded obliga...

How Do You Spell "Inflation Hawks on the Warpath?" ECI

The release of new data from the Employment Cost Index (ECI) has the inflation hawks really excited. It showed that compensation rose by 0.7 percent in the months from March to June. This is a sharp uptick from the 0.3 percent rate in the months from December to March. This could be just what is needed to force the Fed to raise interest rates to slow the economy and keep people from getting jobs. That's pretty exciting stuff.

Before we start designating people to give up their jobs in the war...

Charles Lane Wants to Cut Social Security and Medicare

Yes, what else is new? The immediate topic is Gene Steuerle's new book, Dead Men Ruling (reviewed here). The basic story, taken from the book, is that commitments made in the past, specifically Social Security, Medicare, Medicaid and interest on the debt, are taking up an ever larger share of the budget. This means that in the decades ahead people will have little say in how their tax dollars are spent, since they have already been committed by prior generations of "dead men."

There are sever...