What to do about income inequality?

The first step (of course) is to admit there is a problem.

Everybody knows higher taxes kill jobs. Really!

The graph below is an "inconvenient" fact for the claim in the title of this post.

Grading the GOP Presidential candidates on the budget

Stan Collender at the blog CaptialGainsandGames has an interesting piece (see here) where he grades the GOP Presidential Candidates their approach to the Federal budget.  Below are his grades:


Herman Cain:             Dropped the course
Jon Huntsman:          Incomplete: He just hasn't said much of anything on the budget
Mitt Romney:             D

Romney's says he will reduce spending to 20 percent of GDP by 2016, something that is likely to happen anyway if the economy picks up and current tax and spending laws stays in place. He's also talked about $500 billion in spending cuts without even hinting what they would be. He's also basing his estimates on a change in Medicare that is so unlikely to be adopted it has to be labeled fantasy.

Newt Gingrich:            F

This one is easy. According to the Tax Policy Center, Gingrich's tax plan would increase the deficit by $1.3 trillion in 2015 compared to what would occur under current law. To reduce the deficit, Gingrich relies on what he calls "deep" but completely unspecified spending cuts and higher economic growth.

Ron Paul                      F

This one is also easy. Paul says he wants to eliminate the income, estate and capital gains taxes. That would be fine if he also at least mentioned in passing that he'll also need to eliminate almost everything the federal government does to prevent the deficit and debt from rising. He doesn't.

Rick Perry                    F

Perry says he'll balance the federal budget by 2020, that is, by the end of his second term as president. In other words, without actually admitting it, Perry is saying that there will be seven years of federal deficits if he's elected. Perry also says he wants to cap overall federal spending at 18 percent of GDP without saying how he's going to get it to fall that far below the historical average of between 20 and 21 percent during a period when, because of the Baby Boomers retiring and higher interest on the national debt, it will be rising.

Michelle Bachmann   F

Bachmann doesn't have a deficit reduction plan unless you call refusing to raise the federal debt ceiling and increased Pentagon spending a way to reduce the deficit. Bachmann is committed to what she says will be "deep cuts in spending." She does not, of course, specify what they will be.

Rick Santorum           F

Santorum says he wants to cut $5 trillion in spending over five years. But other than ending federal spending on education, he doesn't say how. Santorum also doesn't say that $5 trillion would be a roughly 20 percent reduction in spending.

Top 10 absurd economic claims for 2011

Menzie Chinn over at Econbrowser (see here) has a "top 10" pick of the most absurd economic claims for 2011.  As the post states,

Here are my "ten best" (actually -- most hilariously deluded) excursions into the fantasy world from my postings to Econbrowser.  The inspirations range from Speaker Boehner's math to the Heritage Foundation's simulations (where have you gone, Bill Beach!).

It is an enlightening post.  Will  2012 produce better economic reasoning?  Well ....

New data on hourly costs in manufacturing

The Bureau of Labor Statistics has a new report (see here) on hourly compensation costs in manufacturing (2010).  Below is a summary graph:

Honestly, what does it take to dismiss the "Big Lie?"

Joe Nocera at the New York Times has a must read post (see here) about the continued false claim that Fannie Mae and Freddie Mac caused the Great Recession.  How often must a falsehood be exposed and discredited before people stop perpetuating it?  I don't know and it is very discouraging.  Fannie Mae and Freddie Mac are not my favorite organizations and they deserve plenty of criticism.  But to argue they "caused" the Great Depression is absurd.  Yet it gets repeated everyday.  Well, kudos for Mr. Nocera for taking on the task of dispelling the claim one more time.  In part he says (but go read the entire essay),


So this is how the Big Lie works. 

You begin with a hypothesis that has a certain surface plausibility. You find an ally whose background suggests that he’s an “expert”; out of thin air, he devises “data.” You write articles in sympathetic publications, repeating the data endlessly; in time, some of these publications make your cause their own. Like-minded congressmen pick up your mantra and invite you to testify at hearings. 

You’re chosen for an investigative panel related to your topic. When other panel members, after inspecting your evidence, reject your thesis, you claim that they did so for ideological reasons. This, too, is repeated by your allies. Soon, the echo chamber you created drowns out dissenting views; even presidential candidates begin repeating the Big Lie. 

Thus has Peter Wallison, a resident scholar at the American Enterprise Institute, and a former member of the Financial Crisis Inquiry Commission, almost single-handedly created the myth that Fannie Mae and Freddie Mac caused the financial crisis. His partner in crime is another A.E.I. scholar, Edward Pinto, who a very long time ago was Fannie’s chief credit officer. Pinto claims that as of June 2008, 27 million “risky” mortgages had been issued — “and a lion’s share was on Fannie and Freddie’s books,” as Wallison wrote recently. Never mind that his definition of “risky” is so all-encompassing that it includes mortgages with extremely low default rates as well as those with default rates nearing 30 percent. These latter mortgages were the ones created by the unholy alliance between subprime lenders and Wall Street. Pinto’s numbers are the Big Lie’s primary data point. 

Allies? Start with Congressional Republicans, who have vowed to eliminate Fannie and Freddie — because, after all, they caused the crisis! Throw in The Wall Street Journal’s editorial page, which, on Wednesday, published one of Wallison’s many articles repeating the Big Lie. It was followed on Thursday by an editorial in The Journal making essentially the same point. Repetition is all-important to spreading a Big Lie. 

In Wallison’s article, he claimed that the charges brought by the Securities and Exchange Commission against six former Fannie and Freddie executives last week prove him right. This is another favorite tactic: He takes a victory lap whenever events cast Fannie and Freddie in a bad light. Rarely, however, has his intellectual dishonesty been on such vivid display. In fact, what the S.E.C.’s allegations show is that the Big Lie is, well, a lie.

A year of bad ideas

Jeff Madrick has a good post on the "10 Worst Economic Ideas of 2011" (see here, it is worth reading in full).  What does he say they are?  Well,


1. Taxes should be more regressive.

2. Austerity works.

3. Export growth models are sustainable.

4. Fannie and Freddie did it.

5. Cutting Social Security benefits is a priority.

6. Inflation is just around the corner.

7. The Medicare eligibility age should be raised.

8. Competition between Medicare and private health insurance will reform the health care system and reduce costs.

9. Federal spending should be capped at 21 percent of GDP.

10. Balancing the budget should involve equal parts tax hikes and government spending cuts.

I don't remember another time when ideas that have been discredited (and often) have gone on to become so widely embraced by people (and, particularly, the Republican party).  Maybe 2012 will be better.

Graph that says much about the status of health care

A passage from Vaclav Havel

The original and most important sphere of activity, one that predetermines all the others, is simply an attempt to create and support the independent life of society as an articulated expression of living within the truth. In other words, serving truth consistently, purposefully, and articulately, and organizing this service. This is only natural, after all: if living within the truth is an elementary starting point for every attempt made by people to oppose the alienating pressure of the system, if it is the only meaningful basis of any independent act of political import, and if, ultimately, it is also the most intrinsic existential source of the "dissident" attitude, then it is difficult to imagine that even manifest "dissent" could have any other basis than the service of truth, the truthful life, and the attempt to make room for the genuine aims of life. 

Interesting data on work force participation

Over at the blog CalculatedRisk (see here) there is some interesting data on work force participation by age group (see graph below):

The author states that:

The participation rate is low for those in the '16 to 19' age group. The rate increases sharply for those in the '20 to 24' age group, and the rate is at its peak from 25 to 49 - and drops off a little for the '50 to 54' age group.

Median debt levels for ages 65 to 74

The Wall Street Journal has a disturbing post (see here) on the rise of median debt levels from 1992 to 2007 for people ages 65 to 74 (see graph below).

New revelations about the Fed's actions during the financial crisis

Over at Bloomberg News (see here) there is a very informative piece about heretofore unrevealed actions taken by the Federal Reserve to shore up the financial system during the Great Recession.  The information is raising many new questions and I suspect these questions will lead to more arguments.  However, one of the observations that shouldn't get lost is that the findings make clear just how dire the economic and financial situation was in 2008.  And this is an important point given that many still claim that "everyone" should have been allowed to fail (along with the other increasing popular - and in my review ridiculous - claim that the government should do nothing in such situations).

And along these lines, take a look at the profile of the two economists (Christopher Sims and Thomas Sargent) who recently won the Nobel prize that appears in today's New York Times (see here).  In particular - again, for those who appear completely ignorant of the history of economics (many of whom a running for president) - see the following quote from the piece:

Conservative voices, like the editorial page of The Wall Street Journal, have claimed them as their own. The men’s work on economic cause and effect and the theory of rational expectations — which maintains that people use all the information available in making economic decisions — proves that Keynes had it wrong, these commentator say.

It would be a provocative thesis — if it were true. But Mr. Sims and Mr. Sargent say their work is being misread. Both, in fact, are longtime Democrats who maintain that government can, and should, play a role in economic affairs. They stand behind many recent policies of the Obama administration and the Federal Reserve. They even have some ideas about how European governments might defuse the running crisis on the Continent.

The duty of protesters: be informed

Gregory Mankiw (see here) has a piece at the New York Times today that is worth a quick read.  He teaches economics at Harvard and has been an adviser to Republican administrations, though he is clearly a "mainstream" economist.  Several students walked out of his Economics 10 class in protest (supporting the Occupy Wall Street movement) and Professor Mankiw's piece is something of a response.  Fundamentally, he applauds their passion but laments their ignorance of basic economics.  His piece contains the following (cautionary) quote from John Maynard Keynes:

“The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique for thinking, which helps the possessor to draw correct conclusions.”