Beat the Press

I Am Out of Here

Thu, 16 May 2013 10:12:43 GMT

I'm off on vacation until Friday, May 24. Remember, don't believe anything you read in the paper until I'm back.

How Much Money Do You Need to Get an Op-ed in the Washington Post?

Thu, 16 May 2013 09:57:32 GMT

That's what readers of Jim Roumell's column on wealth-testing Social Security must be asking. The column, "the rich can save Social Security by giving up their checks," gets almost all its facts wrong, and suffers from huge problems of logic.

The basic idea is that we have some very rich people who don't need Social Security, therefore there shouldn't get it. Of course these people did pay for their Social Security. While Roumell is certainly right that the very rich don't need the money, they generally wouldn't need the interest on the government bonds they own. We could also deny them the interest on these bonds, that would make as much sense as Roumell's proposal on Social Security, but let's not get bogged down in such moral considerations.

Roumell sees large savings if we deny Social Security to the rich:

"According to the Wall Street Journal, the top 1 percent of the United States’ 115 million households have a net worth of $6.8 million or greater. The top 5 percent have a net worth of $1.9 million or greater. If just the top 1 percent of wealthiest households gave up their Social Security income, assuming two-thirds of these households are of retirement age and will receive benefits averaging $30,000 a year, more than $200 billion would be saved in the first 10 years. That would contribute greatly to resolving the projected funding gap. If Social Security is gradually phased out for the wealthiest 5 percent of households, beginning with just a 10 percent benefit reduction, the savings climbs to nearly $500 billion over 10 years."

Let's see, two-thirds of the top 1.0 percent are over age 65? Where exactly did Roumell get this one? Has the Washington Post heard of fact checking?

If we eliminate Social Security for the wealthiest 5 percent, then we would be eliminating benefits for household with incomes of around $80,000 in their retirement. That's a new definition of "rich." It was $400,000 a year when we talked about small increases in tax rates.

But the best part of the story is trying to envision what Roumell's wealth test even would look like. People tend to accumulate wealth during their working lifetime and spend it down as they approach retirement. How do we monitor people's wealth? Do we do annual assessments of the value of their stock portfolios, their home and vacation properties, personal items like expensive paintings and jewelry? Then if they cross the magic $1.9 million threshold at any point in their lives we put a permanent hold on their Social Security benefits?

The long and short is that Roumell's proposal is completely unworkable as anyone who has given it a moment's thought would recognize. But hey, he wants to go after Social Security and he has a lot of money, why not give him a column in the Washington Post?

There Are No More Bangladeshes

Thu, 16 May 2013 09:45:36 GMT

In the aftermath of the horrific factory fire in Bangladesh leading to over 1100 deaths, there have been renewed demands for serious safety standards at the clothing factories there. These demands have been met by the standard response from industry spokespeople that higher costs will simply cost jobs since firms will relocate to lower cost countries.

Adam Davidson has a piece in the NYT magazine this weekend that makes the simple point: there are no more Bangladeshes. The threat of relocation was a realistic concern when companies could move to the south of the United States, to Latin America, to China, or Vietnam, but this threat no longer exists. All of these regions/countries have seen sufficient rise in living standards and wages that they do not provide credible alternatives to companies seeking to escape higher labor costs in Bangladesh. There are no obvious locations where companies can now look to relocate to escape higher costs in Bangladesh.

This means that if companies have to pay a few pennies more per t-shirt to provide safe working conditions in Bangladesh they will just have to live with the higher cost. That means slightly lower profit for the manufacturer and an almost invisible price increase for t-shirt buyers in rich countries.

Did You See the "Air of Crisis" Hovering Around the Budget Deficit?

Wed, 15 May 2013 20:51:19 GMT

In the wake of the release of the new CBO numbers projecting that the debt-to-GDP ratio is actually projected to fall over the next decade, the Washington Post decided to give us one of its classic deficit/debt fear-mongering stories. The piece could not avoid noting the obvious fact that there is nothing that could remotely pass as a deficit crisis in the immediate future, but it did tell us:

"Policymakers have capped spending on agency budgets, permitted across-the-board spending cuts known as the sequester to take effect, let a temporary cut in the payroll tax expire and raised taxes on the nation’s wealthiest households. They have done nothing, however, to tackle the long-term affordability of Social Security and Medicare, which are projected to be the biggest drivers of future borrowing as the population ages."

Of course one of the highlights of this and other recent reports has been the sharply lower projected rate of growth of health care spending which was driving the projections of bloated deficits in future years. One factor in the slower projected growth is the Affordable Care Act, so this assertion from the Post is simply untrue.

However the real gem is this line:

"the improvement in the short-term forecast has removed the air of crisis that has hovered around the budget deficit since President Obama took office."

Wow, an "air of crisis." And where did this "air of crisis" come from? It surely did not come from financial markets, where investors have shown a willingness to lend the United States government trillions of dollars at very low interest rates in the years since President Obama took office. It certainly did not come from competent economists who were able to recognize that the large deficits were a direct result of the economic collapse in 2008. It also did not come from the millions of people who lost their jobs due to the downturn and looked to government stimulus as the only possible source of demand that could re-employ them.

A more accurate statement might be that:

"the improvement in the short-term forecast has removed the air of crisis around the budget deficit that the Washington Post and its allies have sought to promote since President Obama took office."

Let's be serious here, the crisis was invented by people in Washington who have an agenda for cutting Social Security and Medicare. That is as clear as day. The deficit crisis does not actually exist in the world. In the world we have a crisis of a grossly under-performing economy that the Post and its allies have attempted to perpetuate.

How We Know that the Investment Industry Has No Argument Against Caps on 401(k)s

Wed, 15 May 2013 18:45:58 GMT

We know this because they are spouting utterly absurd lines which Paul Sullivan unfortunately felt he had to repeat in his NYT column. Sullivan discusses the number of people who could be hit by President Obama's proposal to cap tax sheltered savings at $3.4 million.

The discussion is ridiculous throughout. It makes a point of saying that under optimistic assumptions we could get 10-20 million people rubbing up against the proposed limits. (Yes, 10 percent of the population will have millions of dollars in financial assets.) However even more ridiculous is that there is no reason any serious person should give a damn.

If a person has $3.4 million in a tax sheltered account is there some national tragedy that the additional $50,000 they want to save will be subject to normal tax rules. If this ever rises to the point of meriting serious policy consideration then the world is way better off that I thought.

But here's the best part:

"Any discussion of retirement savings that suggests 'taking away tax-advantaged investing and capping investment amounts is detrimental to the system and society as a whole,' said Robert L. Reynolds, president and chief executive of Putnam Investments and one of the people considered responsible for popularizing the 401(k) plan.

"'Right now elderly poverty is at an all-time high,' Mr. Reynolds said. 'If that tells government anything, it’s we should do more to encourage saving for retirement.'"

Actually elderly poverty is nowhere close to being at an all-time high, but more importantly, what does Mr. Reynolds think he is talking about? The elderly who are in poverty are not worried about brushing up against the $3.4 million tax-exempt limit being proposed by President Obama. He is spouting non-sequiturs.

Apparently that is the state of the debate on this issue. And, the NYT's retirement columnist presented this nonsense as a serious argument.

Steven Pearlstein Tries to Rescue His Austerity Pushing Friends

Wed, 15 May 2013 10:19:11 GMT

Steven Pearlstein is upset that the austerity pushers, like the Post's editors, are looking rather foolish these days. After all, it seems they not only have problems with basic economic logic, they also have trouble with Excel spreadsheets. He notes the serious structural problems in Greece and some of the other crisis countries, then tells readers:

"Unfortunately, this is not how the anti-austerity crusaders talk about Greece or Italy or Portugal. They offer no reasonable alternative other than the rest of the world should line up to pour more money into a uncompetitive economies and profligate governments, under the theory that they can grow their way out of the hole they’ve dug. They can’t."

Hmmm, I wish I knew some of the "anti-austerity crusaders" that Pearlstein is talking about. Folks I know have been talking about the need for adjustments in relative wages that can best be brought about by having wages in Germany and other surplus countries rise more rapidly so that the southern countries can regain competitiveness.

There are of course other problems in the crisis countries, in Greece most importantly the problem that people don't like to pay taxes. This anti-austerity crusader has recommended a tax amnesty which would be coupled with serious penalties for people who don't comply. (How do you spell "life in prison.") My guess is that if millionaire and billionaire tax evaders got the impression that they would never get to see their families or money, they might be a bit more conscientious about adhering to the tax codes.

I have also suggested a vacant property tax to lower both residential and commercial rents, thereby raising real wages and providing a boost to business. I'd be happy to see many other reforms that would eliminate corruption that has developed over the years in these countries, as I suspect is the case with most anti-austerity crusaders. My argument, and I suspect that of my fellow crusaders, is that we have to keep our eyes on the ball.

These countries are suffering today from the fallout from collapsed asset bubbles, not their internal structural problems. The fault for these bubbles sits squarely with all the wise people at the ECB and EU who are now pushing austerity. Somehow they thought everything was fine in the years of the "Great Moderation" even though all the danger signs were flashing bright red.

Making the people in these countries suffer does not in any obvious way fix their structural problems. It just ruins lives. Yeah, me and my fellow crusaders don't think that's cute. Better to ruin the lives of the elites who caused this crisis.