Dean Baker's Blog, page 433

Washington Post Takes Another Shot at Reducing Social Security Benefits

It seems to really pain the Washington Post editors that retirees can collect Social Security checks that average just over $1,200 a month. The amount of ink that they have devoted in both their opinion and news pages to cutting benefits could probably fill the Great Lakes. They're at it again today pushing a cut in the annual cost of living adjustment by adopting a chained CPI as the measure of inflation.

As expected, the piece uses more than a bit of sleight of hand to make its case. For ex...

Fans of National Income Accounting Are Not Surprised by the Weak Recovery

Robert Samuelson is again perplexed by the failure of the economy to recovery more rapidly. It is difficult for those of us who understand national income accounting (the stuff we teach in intro econ) to understand the confusion.

Prior to the economic collapse the economy was being driven by a housing bubble. When the bubble burst, we lost more than $600 billion in annual construction demand and more than $500 billion in annual consumption demand. There is no obvious mechanism in the economy...

Republicans Propose to Raise Marginal Tax Rate on "Job Creators" and the Post Doesn't Notice

Folks who have been awake during the last six months recall that the Republicans opposed raising marginal tax rates on the wealthy as the highest principle of politics and economics. That is why it should have been a huge news story when they proposed a plan that would do exactly this, but only for the less wealthy who fall in that esteemed group they call "job creators." Remarkably the Post article that reported on this change totally ignored this break with Republican theology.

The break c...

Government Granted Monopolies Lead to Corruption: The Case of Prescription Drugs

There is a large economic literature that shows how trade protection, that might raise the price of products by 15-20 percent, leads to political corruption. The argument is that the beneficiaries of this protection will use their political power to try to maximize the rents they get from this protection.

For some reason economists have not shown the same concern over the granting of patent monopolies which can raises the price of the protected product many thousand percent above the free ma...

Ross Douthat Argues that Social Security Would be Easier to Cut If It Were Changed from a Social Insurance Program to a Welfare Program

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.

Douthat is off on a few other points. He tells readers:

"In an era of mass unemployment, mediocre wage growth and weak mobility from the bottom of t...

That Shortage of Skilled Manufacturing Workers is Really a Shortage of Employers Willing to Pay the Market Wage

News stories have been filled with reports of managers of manufacturing companies insisting that they have jobs open that they can't fill because there are no qualified workers. Adam Davidson at the NYT looked at this more closely and found that the real problem is that the managers don't seem to be interested in paying for the high level of skills that they claim they need.

Many of the positions that are going unfilled pay in the range of $15-$20 an hour. This is not a pay level that would b...

Can We Get the Washington Post Editorial Board an Internet Subscription for the Holidays So It Stops Saying Silly Things About Consumption?

People who are familiar with the Commerce Department's National Income and Product Accounts know that consumption as a share of disposable income is high by historic standards, not low, as shown in the beautiful graph below.

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Source: Bureau of Economic Analysis and author's calculations.

As can be seen, consumption as a share of disposable income is higher than at any point in the 60s, 70s, 80s, and even most of the 90s until the stock bubble generated a consumption boom. It is lower than...

Are World Financial Markets Talking to the NYT?

If they are, the paper should charge more for its subscriptions. Come on folks, a sentence that tells readers:

"once the target numbers are settled, negotiators would have to come up with a down payment on deficit reduction to show the world’s financial markets that Washington is serious."

has no place in a serious newspaper. Someone obviously told the NYT reporter that it was necessary to have a "down payment" to convince world financial markets that "Washington is serious." The NYT did not...

Underwater Homeowners Cannot Explain the Weak Recovery

Anyone wanting to learn about the economy who talked to the nation's top economists in 2006 would have been wasting their time. Almost none of them had any clue that the collapse of the $8 trillion housing bubble was going to wreck the economy. This presumably reflects a rigid dogmatism and conformity on the part of these economists, since it should have been both very easy to recognize an unprecedented run-up in house prices as a bubble and also to understand that the collapse of the bubble,...

Morning Edition Scares Listeners About the Consequences of not Reaching a Budget Deal

A Morning Edition segment with a CEO working with the Peter Peterson funded group, the Campaign to Fix the Debt, implied that the economy would go into a recession if a deal is not reached by January 1. There is no economic forecast that shows the economy going into a recession if a deal is not reached by January 1.

The forecasts showing the economy going into a recession assume that there is never a deal reached so people are paying higher taxes all year, emergency unemployment benefits are...