This is incredibly dishonest. The extent to which foreigners hold U.S. assets is determined by the trade deficit, not the budget deficit. (Actually, the causation largely goes the other way. The decision of foreign governments and/or investors to buy dollar assets raises the value of the dollar, leading to a larger trade deficit.) Insofar as there is an issue of U.S. indebtedness, it is the holding of U.S. assets in general by foreigners. This represents claims against future U.S. output that will be paid out to foreigners rather than being available for domestic consumption. Whether foreigners hold shares of General Electric and Microsoft or U.S. government bonds makes no difference, especially since one can be readily sold to buy the other any day of the week.
A serious discussion of this issue would focus on the value of the dollar. That is the relevant factor in the story of foreign indebtedness. Given the current value of the dollar, at the same level of GDP, we would be building up just as much foreign debt if the government were running a budget surplus rather than a $1.3 trillion deficit. Economists all know this.
However, the deficit hawks are not interested in a serious discussion. They are pushing their agenda of cutting Social Security and Medicare. And they are apparently willing to appeal to crude jingoism to make their case.
--Dean Baker]]>
Even after that date, if nothing is ever done to change the program, the projections still show that it will be able to pay close to 80 percent of scheduled benefits. This will still provide future retirees with a benefit that is considerably larger than what current retirees receive.
All of these benefits will be paid under current law. Congress would have to vote to overhaul the program to prevent the payment of benefits.
--Dean Baker]]>
The Post has a long history of making things up to promote trade agreements. For example, a 2007 editorial promoting NAFTA told readers that Mexico's GDP had quadrupled from 1988 to 2007. The actual increase over this period was 83 percent. The Post never printed a correction of this grossly exaggerated growth figure. (NAFTA took effect in 1994, so it not clear why the paper chose 1988 as the beginning year to assess NAFTA's impact.)
--Dean Baker]]>
Samuelson complains that the government: "the budget is mainly a vehicle for transferring income to retirees from workers, who pay most taxes." This complaint is based on the portion of the budget that goes to funding programs that largely support retirees, specifically Social Security, Medicare, and Medicaid. Of course the reason that much of government spending goes to support retirees is that a large portion of tax revenues is collected in taxes designated for this purposes. In fact, almost 40 percent of government revenue currently comes from these taxes.
People who know about the Social Security and Medicare taxes are not surprised that a large portion of government spending goes to support these programs. Similar logic explains why such a disproportionate share of government spending goes to pay money to rich people like investment banker and noted deficit hawk Peter G. Peterson. These wealthy people tend to get much larger payments from the government than low-income families because they bought bonds from the government.
Most people understand this situation. It's too bad that the Washington Post could not find a columnist who is not confused by simple budget issues.
--Dean Baker ]]>
Of course, in discussing Social Security spending serious reporters would point out that it is financed by a dedicated tax. Since payments are projected to be fully covered by this tax and the interest on the bonds held by the Social Security trust fund, cutting benefits would effectively amount to a default on the bonds held by the trust fund. Of course, if the U.S. budget situation really were sufficiently desperate (it isn't) then we would want to consider a partial default, but there would be no reason to default exclusively on the bonds held by the Social Security trust fund.
--Dean Baker]]>
The NYT piece also presents some misleading mythology. It notes that the last Clinton budgets had surpluses and that he left office with large surpluses projected long into the future. This is a cute story, but the reality is that these surpluses were not sustainable. The economy in the last Clinton years was being driven by a stock bubble. It was inevitable that the bubble would burst, as it did in the years 2000-2002. This through the economy into a serious downturn. (The official recession was short, but we did not start creating jobs again until the fall of 2003.)
The downturn was the major factor behind the shift from Clinton surpluses to Bush deficits, not the tax cuts or even the war spending, which the NYT is right to note is a major factor in current deficits (@$300 billion of the annual deficit is attributable to higher than expected defense spending). The collapse of the stock bubble, by itself, cost the government more than $600 billion in capital gains taxes over CBO's 10-year projection period in 2001.
In short, the economy that supported the budget surpluses of the Clinton years was not a healthy one. Bush's economic mismanagement made it much worse, but the economy was not on a sustainable path at the point he took office.
--Dean Baker]]>
In short Mr. Blankfein took his company to the edge of bankruptcy (and caused enormous damage to the economy in the process). He was subsequently rescued by his former colleagues who occupied top positions in the government. "Only" might not be an appropriate word to describe his $9 million bonus.
--Dean Baker]]>
Only a fool would try to make policy based on these movements and only a dishonest political hack would use them as a basis for supporting or opposing specific policies.
--Dean Baker]]>
However, small businesses are also responsible for the overwhelming majority of job losses in the economy. (Serious economists would talk about net job creation -- jobs created minus jobs lost -- and by this measure small business does no better than big business.) Small businesses pay their workers less on average than large businesses. They are less likely to provide workers with health care and pension benefits. Small business owners are also the major source of tax cheating. Their evasion of hundreds of billions of taxes every year leave the rest of us with larger tax bills.
It would have been helpful if NPR raised these issues instead of implying that anything and everything that the government does to promote small business is a benefit to society.
--Dean Baker]]>
The WSJ gave us another example of this lack of knowledge when it listed Medicare and Social Security as "the U.S.'s biggest budget busters." In fact, those of us who did sit through third grade know that Social Security actually is running an annual surplus. The amount of money it takes in each year on the designated Social Security tax and the interest it collects on its bonds exceeds what it pays out in benefits.
While Medicare's costs are rising rapidly due to the broken private health care system, Social Security is a money loser in the same way as IPOD is for Apple.
--Dean Baker ]]>
In fact, Japan's economy continues to produce far more than it consumes, which is why it has a trade surplus, something that appears in the Post article as a serious negative. In fact, economists would argue that this is exactly what a country with an aging population should be doing: running trade surpluses so that it can draw on foreign assets in future decades.
It is not clear what sort of crisis the Post envisions from the aging of Japan's population. It seems to believe that Japan will face a labor shortage, but of course this is the opposite of the situation at present where its economy is operating far below full employment. In the future, if its economy does begin to reach full employment levels of output, then this would simply mean that labor goes from less productive jobs to more productive jobs. This is a process that always happens in growing economies. That would mean that positions in some less productive jobs, like the Tokyo subway people packers, may go unflled.
--Dean Baker ]]>
It would have also been worth informing readers that the interest paid by Goldman was far below the market interest rate at the time of the crisis. We know this because Warren Buffet contracted to lend money to Goldman at the the same time as it received TARP money and charged more than twice the interest rate as the government. In addition, Goldman was allowed to borrow more than $20 billion with a guarantee from the FDIC. This guarantee saved Goldman several billion dollars in interest costs. Goldman likely also borrowed billions of dollars at below market interest rates from the Federal Reserve Board's special lending facilities, although we don't know this for certain because Federal Reserve Board Chairman Ben Bernanke refuses to tell the public to whom he lent our money and under what terms.
Goldman was also handed almost $13 billion from the government through AIG, that it would not have received if the government had allowed AIG to go bankrupt. Goldman is not repaying this money.
Getting money at below market interest rates is a gift, just like getting anything else at below market price is a gift. If the NYT felt the need to give us additional background about Goldman repaying its bailout money (with interest) in the context of a discussion of Mr. Blankfein's bonus, it should have also informed readers that the interest it paid was far below market rates.
--Dean Baker ]]>
Who would have more reason to give China "lectures" on its currency policy than the country that suffers most from this policy. The NYT implies that there is something peculiar about the Obama's administration's complaints given that it is a large debtor of China. Of course the whole point is that the Obama administration is complaining because China's policies have made it a large debtor.
It is worth noting that the United States does not have to beg China to change its currency policy as the article implies. It can unilaterally set an exchange rate that has a lower value for the dollar against the yuan. This would be an extraordinary measure, however if China refused to raise the value of the yuan, the U.S. government could announce its willingness to trade yuan at a higher value (e.g. 5 yuan to a dollar) than China's official exchange rate.
--Dean Baker]]>
In fact, if banks who want to engage in risky behavior move their operations overseas we should view this as a positive. The explicit and implicit support that governments give to their banks is a form of subsidy. The subsidy is larger if the banks are allowed to take excessive risks. If other countries allow their banks to take bigger risks than would be allowed in the United States, then people and businesses in the United States can take advantage of their more lax regulation. If things turn out badly, then these other countries will end up picking up the tab for their banks, just as did Iceland.
This is an argument for effective regulation in the United States, not an argument against it. The NYT should have noted Mr. Corker's apparent confusion on this issue.
--Dean Baker]]>
It is not clear on what evidence the NYT is basing the assertion that more people defaulting on their mortgages would damage the economy because none is presented. In fact, this is likely to benefit the economy since if people stop paying mortgages on homes that have fallen in value since the collapse of the bubble, and decide to rent instead, it is likely to free up thousands of dollars a year for each family. If millions of homeowners made this decision it could lead to tens of billions of dollars in additional consumption, providing a substantial boost to the economy. The decision of homeowners to walk away might be bad news for banks, but it is good news for the economy.
In this respect it is worth noting that the Obama administration's mortgage modification programs are likely hurting the economy by encouraging underwater homeowners to keep paying mortgages that far exceed the rent they would pay on a comparable unit. In addition, these programs use taxpayer dollars that could in principle be used for health care, education or other important purposes.
--Dean Baker]]>