Dean Baker's Blog, page 380

Liberals Complain that Dodd-Frank Stifles Growth, Too

A Washington Post article reporting on Neil Wolin's departure from a top Treasury Department job discussed his work on the Dodd-Frank, then noted the controversy around the bill:

"with conservatives saying it is holding back economic growth and liberals complaining it falls short of what’s needed to rein in Wall Street."

Actually, the liberal position would also be that the bill would slow growth. By allowing Wall Street to continue in its current practices, the government is effectively subs...

Tyler Cowen Is Worried About Wealth Taxes

Tyler Cowan told NYT readers that he is concerned that one response to growing inequality might be a renewed push for wealth taxes. I have some sympathy for his position, not because I am concerned so much about the inefficiencies created in taxing wealth (those are not good), but you tend not to get the money.

Wealth can be pretty easy to hide. (Ever see a Picasso painting?) If we give people a large incentive to hide their wealth, it is reasonable to assume that they will. This means that w...

Robert Samuelson Says Why Worry About Sick People, Most People Are Healthy

I'm not kidding, but of course he gives us the economic equivalent telling readers:

"For most Americans, the economy is performing adequately, though obviously not spectacularly. Despite a woeful 7.6 percent unemployment rate, it remains true that 92.4 percent of workers have jobs (counting discouraged workers who’ve left the workforce would reduce this to about 90 percent). We have two distinct economies: one that inflicts acute pain on a minority of Americans but inspires mass political and...

Pension Assumptions of 8 Percent Returns

A NYT article on the fate of Detroit's retired workers following its bankruptcy made reference to the pension funds' assumption of an 8 percent return following its bankruptcy. There are two points worth making on this issue. First, it was an error to assume an 8 percent return in 2007 given the ratio of stock prices to trend earnings. At the time, that was over 20, which meant that stock could be expected to provide a real return of less than 5 percent going foward. Adding in an inflation pr...

Doctors Make Lots of Money Because They Are Very Skilled at Manipulating Markets

The Washington Post has a great piece on how the American Medical Association is able to inflate doctors' pay by hugely exaggerating the amount of time that Medicare assumes is required for a wide range of medical procedures. This increases Medicare reimbursement rates as well as the reimbursement rates paid by private insurers.

The Great Aluminum Heist

The NYT has a nice piece on how Goldman Sachs has gotten into the aluminum business in a big way in recent years. The discussion of how it uses its control over inventories to jack up prices is fascinating. There are several interesting take-aways.

First, the piece suggests that the impact on price is limited (7 percent, if their estimates are right), but worth a huge amount given the volumes involved. This is what I had always assumed about the extent to which this sort of speculation can af...

Unfunded Pension Liabilities Are $1 Trillion, Not $3.8 Trillion: Never Take Anything In a Washington Post Editorial At Face Value

Sorry folks, I committed the cardinal sin of accepting an assertion from a Washington Post editorial without carefully checking it myself. This morning the Post's lead editorial used the occasion of Detroit's bankruptcy to beat up on public sector pensions. The Post told readers:

"A new survey by scholars at Boston College finds that state and local pension plans have $3.8 trillion in unfunded liabilities, even assuming strong rates of return."

I did actually check the study and saw the chart...

Pension Calculations Based on Future Returns Do NOT Leave Cities With a Gaping Hole

Mary Williams Walsh seriously misrepresented the issues in discussing the debate over the discounts rates that public pension plans should use in assessing their liabilities. The goal of any formula for funding pensions should be to maintain a relatively even flow of funds into the pension in order to avoid sharp disruptions to government budgets.

The formula that pension funds typically use, which involves a smoothing process and discounts liabilities based on the expected rate of return of...

Washington Post Whacks Readers Over the Head With REALLY BIG NUMBER to Advance Agenda on Cutting Pension Benefits

The Post's lead editorial on Detroit's bankruptcy highlighted the role of pensions in the city's finances. It warned readers that the problem of large unfunded pensions is common, telling readers:

"A new survey by scholars at Boston College finds that state and local pension plans have $3.8 trillion in unfunded liabilities, even assuming strong rates of return."

Got that? $3.8 TRILLION in unfunded liabilities! Let's see, I've $26.43 in my pockets, how does that compare? [See correction note -...

What Is the Point of Budget Reporting?

That is a serious question. What are newspapers, radio and television stations, and Internet sites trying to accomplish when they report on the budget?

Presumably they are trying to convey information to their audience. This raises the question of why they so frequently just report budget numbers in billions or trillions of dollars; numbers that will be almost completely meaningless to the overwhelming majority of their audience.

This point is simple and straightforward. When a newspaper tell...