Dean Baker's Blog, page 539

Germany Does Not Have the Second Highest Tax Rate in Europe and the European Central Bank Is Incompetent

The Washington Post has a lengthy article on Germany which touts the austerity measures the country imposed in the last decade. It tells readers that Germany has the second highest tax rate on ordinary workers based on a chart that strangely excludes Denmark and Sweden, the two highest tax countries in Europe.

The article also never mentions the role of the European Central Bank (ECB) in the current economic crisis hitting most of Europe. The crisis was the result of the failure of the ECB...

The NYT Lumps Together Social Security and Medicare Again

The NYT did the old "entitlements" bashing in a budget piece today. In the Congressional Budget Office's Alternative Fiscal Scenario, which most analysts are using as the basis for budget debates, Social Security outlays are projected to increase by 25 percent as a share of GDP over the next two decades, from 4.8 percent to 6.0 percent. And all of this increase in spending will be covered by the bonds held in the Social Security trust fund.

By contrast, Medicare outlays are projected to...

Austerity and Growth Are Contradictions: Tell the NYT

The NYT missed much of the story in its report on the likelihood of a default by Greece. One of the main factors exacerbating the plight of Greece and other heavily indebted countries in the euro zone is the relatively contractionary policies pursued by the European Central Bank (ECB), ostensibly to fight inflation.

If the ECB had a more expansionary monetary policy, the additional growth would increase tax collections in Greece and other countries. It would also reduce payments for...

New Oil Isn't Quite the Transformation the NYT Implies

The NYT implied that shale oil production and new oil sources elsewhere in the western hemisphere will transform oil production and use in the United States. For example, it notes that production from shale oil could exceed 2 million barrels a day by 2020 and then adds:

"The United States already produces about half of its own oil needs, so the increase could help it further peel away dependence on foreign oil."

Actually, this oil will largely replace declining yields from older fields in...

David Brooks Has Not Heard About the Affordable Care Act

That's what readers of his column complaining about President Obama's speech on the budget must conclude. He is upset that Obama:

"whispered about seriously reforming Medicare but then opted for changes that are worthy but small."

If Brooks has heard about the Affordable Care Act (ACA), he would know that it actually provides for large cost controls in Medicare. According to the Mediciare trustees report, these cost controls would eliminate almost 80 percent of the long-run deficit projected ...

NPR Tells Us How Much Deficit Reduction We Need

NPR told listeners that the $1.2 trillion in deficit reduction being sought by the congressional super committee, that in fact we need $4 trillion. It's great that they got the word from God on this one.

Those of us who look at numbers might think otherwise. The financial markets are saying loudly that there is no problem with current deficits, otherwise they would not be lending money to the United States for 10 years at interest rates of just 2.0 percent. The numbers also offer many...

Patent Monopolies Lead to Enormous Economic Waste

It would have been to include the view of an economist in this article that reports on how China and India are now able to produce low-cost versions of bio-tech cancer drugs. These drugs sell now for several thousand dollars per dose as a result of government granted patent monopolies.

Patent monopolies lead to enormous market distortions in the same way as other barriers to trade. However, the impact of patents is much larger since they have a much bigger effect on prices. It is rare that...

Paul Volcker's Recollection of the History of Inflation is a Bit Weak

Former Federal Reserve Board Chairman Paul Volcker lectured readers on the dangers of inflation in a NYT column today. He warned that a little bit of inflation invariably grows to a lot of inflation, which then carries a huge cost to contain.

Actually this has not in general proven to be the case. The one time in the post-war period where inflation clearly became excessive in the United States was in the 70s. This was due to a number of extraordinary events, including large oil price...

Republicans Are Not Being Truthful When They Blame "Uncertainty" for Lack of Hiring

The Washington Post has a front page article outlining President Obama's plans for deficit reduction. It then quotes Representative Paul Ryan blaming "uncertainty" for slow growth and high unemployment.

If it were the case that firms would actually be hiring except for uncertainty then we would expect to see firms increasing the average number of hours worked per workers and also turning to temporary workers. The argument here is that firms are seeing demand for labor, but they are scared to ...

Tax Breaks Are Heavily Tilted Toward High Income Taxpayers

The Post had a front page column reporting on the cost of tax breaks. The piece likely gave many readers a misleading picture of the main beneficiaries of these tax cuts when it told readers that:

"the bulk went to private households, primarily upper-middle-class families that Obama has vowed to protect from new taxes.'The big money is in the middle-class subsidies,' said Syracuse University economist Leonard Burman, former director of the nonpartisan Tax Policy Center."

In fact, by far...