Beat the Press

Dean Baker's commentary on economic reporting

5/12/2006

The Medicare and Social Security Hoax

Medicare and Social Security costs are projected to soar over the next decade as the baby boomers retire. Medicare and road maintenance costs are projected to soar over the next decade as the baby boomers retire.

Health care costs in the United States are out of control, with per capita health care costs rising at rate that is more than 2 percentage points more rapid than the rate of growth of per capita income. If this pattern continues, health care costs will have a devastating effect on the private economy and also on the federal budget because of government health care programs like Medicare and Medicaid. The obvious policy response to the projections of exploding health care costs would be to find some way to fix the U.S. health care system (no other country has a problem of the same magnitude). It is dishonest to portray the issue as a problem of aging – we can afford the costs associated with aging – the problem is our health care system.

When the media reports, as the Post did this morning, that the problem is not with discretionary spending, “but with entitlement programs such as Medicare and Social Security, which will grow by 23 percent through 2010,” they badly mislead readers. The cost of Social Security is rising only slightly faster than GDP. Over the next decade, Social Security spending is projected to increase by just 0.2 percentage points as a share of GDP. By contrast, spending on Medicare and Medicaid is projected to increase by a total of 1.5 percentage points of GDP.

Furthermore, Social Security is financed by a designated tax that is projected to keep the program fully solvent through the 2052 by the non-partisan Congressional Budget Office. This means that any cuts to Social Security should in principle be matched by cuts in the tax, unless the intention is to mislead people about the purpose of this tax.

There is a large and powerful lobby that would badly like to cut and/or privatize Social Security, and they have no qualms about playing with the truth to advance their agenda. The media should not help them.

Copyrights and Consumers: Not at the Times


The New York Times had an article this morning about a new digital copyright law in France. The main features (according to the article) appear to be a requirement that music downloading services be usable on multiple devices (as opposed to Apple’s Ipod monopoly) and a relatively small penalty for unauthorized downloading of copyrighted material.

For comments on the law, the Times turned to a representative of Apple, a representative of the recorded music industry, a representative of the software industry, and a business consultant. This would be like writing an article on steel tariffs and only getting comments from the steel companies and their workers. Wouldn’t it be appropriate to get some comments from consumer groups or at least economists who could discuss the potential benefits to consumers and the economy from lower prices?

5/11/2006

The Times Discovers Temps in Europe

The New York Times had an interesting article about the growth of part-time and temporary employment in Europe. It notes that in several European countries, 20-30 percent of the workforce is employed either part-time, or on temporary employment contracts, or both.

It is good to see this piece, because part-time and temporary employment has been an important part of many European economies for close to two decades. As the article notes, these workers tend to enjoy far less employment protection than do full-time workers.

Of course, the article is somewhat misleading in implying that these workers enjoy no protection. The extent to which employment protection extends to part-time and temporary workers varies substantially across countries, but in most countries, part-time and temporary workers enjoy more legal protection than do full-time workers in the United States, who generally can be fired without cause at any time. Part-timers and temps in Europe also generally have health care coverage and other benefits like paid vacations that part-timers and temps in the United States rarely receive.

But the basic point is absolutely correct, part-timers and temps offer employers more flexibility than permanent full-time employees. Given the choice, employers will opt for more flexibility. The extent to which this increased flexibility has led to lower unemployment and more growth is questionable (the OECD research on this issue has not produced strong evidence), but it is an important feature of economic life in Europe, and it is good to see that the Times has discovered it.

5/10/2006

The Conservative Nanny State is Here!

The moment you have all been waiting for has finally arrived. You can download your copy of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer today. The book is available as a free e-book (read chapter 4 for the reasoning). You will soon be able to order paperback copies at Conservativenannystate.org.

The book takes issue with the prevailing political metaphor in U.S. politics: that liberals want the government to intervene to promote fairness and equity, while conservatives want to leave outcomes to the market. The book argues that conservatives (or at least those in power) support a wide range of government interventions that have the effect of distributing income upward. This list includes a trade and immigration policy that places less-skilled workers in direct competition with workers in developing countries, while protecting highly paid professionals from the same sort of competition. Another item on the list is Federal Reserve Board policies that deliberately weaken the bargaining power of less-skilled workers in order to keep inflation under control.

A third set of policies involves the use of patents and copyrights – government enforced monopolies – that lead to large economic distortions, and incidentally also allow some people to get very rich. Even corporations themselves owe their existence to the government – there are only individuals out there in strict free market land.

The book is intended to force a rethinking of the relationship between the government and the economy. The current framing -- that liberals like government and conservatives like the market -- works well for those who support the economic policies of the last quarter century. Those who think that we can do better need a new framework.

The New York Times Discovers Sweden

The Times had an article this morning that reports on Sweden’s success in sustaining healthy rates of economic growth, while also ensuring a high degree of economic security for its workforce. The article is mostly fair, but is misleading on a few points.

For example, the article reports that Sweden overhauled its Social Security system in the mid-nineties and added private accounts. This is true, but it would have been helpful to add that the defined benefit portion of Sweden’s system is still approximately one-third larger (relative to wages) than the current U.S. system.

The article also reports a common complaint that the official unemployment rate of 4.8 percent substantially understates true unemployment because it excludes the people in government retraining programs. (The article reports that labor unions put the true rate at 8 percent. Labor unions rarely appear as a source for economic data in Times articles.) It is not clear why workers in government funded training programs should be counted among the unemployed. Would it be appropriate to count workers in companies receiving tax breaks as unemployed?

In its discussion of unemployment the article also adds that, “according to some estimates, Swedes take an average of 17 weeks a year off from work on sick, disability or parental leave, further twisting the statistics. Absenteeism is the highest in the developed world.” Presumably, these comments are intended to imply that the unemployment rate is actually worse than the official numbers indicate, but it is hard to follow the logic here. Other things equal, aren’t people better off if they get long vacations and can take sick days without worrying about losing their jobs. (I said “other things equal” – so we’re assuming this doesn’t affect productivity, economic growth, etc.)

It may have been appropriate to mention in this context that the employment rate (the share of the working age population that is employed) is approximately 2 percentage points higher in Sweden than in the United States.

The article concludes with the obligatory warning that Sweden and the other Nordic success stories are unique, “And in this debate, size, geography and history do matter. Sweden has been free of war for 200 years. Norway, with 4.6 million people, is rich in oil but fiscally cautious. The economy in Finland, with some 5.2 million people, revolves around the fortunes of the cellphone giant Nokia.

Also, the Nordic countries tend toward the individualism of seafaring lands whose past spanned trade and conquest. Only Finland, the lone republic among the Scandinavian monarchies, joined the euro common currency, and Norway has rejected membership in the European Union altogether.”

In other words, don’t try these policies at home.

5/09/2006

Post Columnist Advocates Default on National Debt

Washington Post columnist Allan Sloan called for defaulting on the U.S. national debt, or at least a portion of it, in his weekly column today. Mr. Sloan pointed out that the Social Security trustees project that the program will begin drawing on the government bonds in its trust fund in just over a decade. He said that repaying the bonds in the trust fund will be a burden to the government, and that his children, as future taxpayers, shouldn’t have to bear this burden.

Mr. Sloan probably would object to describing his column as a call for default on the national debt, but this in fact exactly what it is. In the column, he implicitly derides the legitimacy of the bonds held by Social Security by calling them IOUs. Of course all bonds are IOUs, but they are never described this way in normal discussions.

Under the law, the bonds held by the Social Security trust fund are legal obligations of the federal government. Social Security bought these bonds with the excess Social Security taxes paid by more than 150 million workers over the last two decades. (Taxes were deliberately raised to exceed benefits in order to build up the trust fund.) The trust fund current holds more than $1.9 trillion in bonds, approximately $12,000 for every active worker. Workers have every right to expect that the money they paid into the trust fund in Social Security taxes will be repaid in benefits that are financed out of general revenue. (This is not in one pocket out the other – general revenue comes primarily from the progressive individual and corporate income taxes, while Social Security taxes are highly regressive.)

Mr. Sloan’s kids may not want to pay their taxes (most people would prefer not to pay taxes, if they can avoid it), but as a moral matter, there is no greater justification for defaulting on the debt to Social Security than any other portion of the government debt. If a future Congress debates default on the bonds held by the Social Security trust fund then it would also be reasonable for it debate default on all other government bonds, including those held by banks, corporations, and wealthy individuals.

Realistically, if we fix our national health care system, then future budgets should not impose any extraordinary burdens on future generations of taxpayers. But, if default ever rises as an issue on the national agenda, then we should be talking about making all debt holders share the burden of the default, not just the debt holders that Mr. Sloan doesn’t like.

Dying Children and Numbers in Context

A New York Times article this morning, reporting that up to 4 million infants die every year for the lack of very simple medical care items, provides a classic example of reporting numbers out of context. The article informs readers that the Bush administration proposes to spend $323 million in 2007 on aid for maternal and child health care in developing countries, down from $356 million in 2006.

Apart from the failure to adjust the spending figures for inflation, very few Times readers are probably aware of the fact that the 2007 appropriation comes to $1.08 per person in the United States, or 0.013 percent of federal spending. This program may or may not be a good use of public money, but it is a trivial item in the federal budget, and readers should be made aware of this fact.

5/07/2006

Missing Fact on British Health Care

The New York Times had an interesting piece on the poor state of the dental care provided by the British public health care system in its Sunday paper. The article reports that people face long waits for even emergency dental care, and that many now turn to private dentists or go to foreign countries for treatment.

Readers naturally feel sorry for the plight of Britons with bad teeth and are thankful that here in the United States we have an efficient private health care system. The key fact missing in the story is that Britain spends less than 40 percent as much person for its health care as the United States. Whatever the relative merits of the British mechanism for providing health care and the U.S. system, it would be truly astonishing if the British system could best the U.S. in every category, spending just 40 cents to our dollar. (Britain does much better on life expectancy for its 40 cents.)

This article is part of a long series of articles in the New York Times which could go under the title of “the problem of publicly financed health care systems.” Previous articles in this series have noted problems in French, British, and most often the Canadian health care systems. Articles in this series almost never mention the fact that the health care system in question costs far less than the U.S. system or that it produces longer life expectancies. My guess is that most of the highly educated readers of the New York Times are ignorant of these basic facts about health care, even though Paul Krugman has done a heroic job of trying to fill the information gap in his columns.