Relevant and even prescient commentary on news, politics and the economy.

$ 2.1 trillion here $ 2.1 trillion there and soon you’re talking real money

I didn’t think they could shock me. Then I read that the Trump OMB made a $2,000,000,000,000 arithmetic mistake

Jon Chait explains “One of the ways Donald Trump’s budget claims to balance the budget over a decade, without cutting defense or retirement spending, is to assume a $2 trillion increase in revenue through economic growth. This is the magic of the still-to-be-designed Trump tax cuts. But wait — if you recall, the magic of the Trump tax cuts is also supposed to pay for the Trump tax cuts. So the $2 trillion is a double-counting error.”

Amazing, I thought. Also Chait is much better at snark even than Paul Krugman who made it sound boring “@paulkrugman
It appears that Trump budget involves two scoops of voodoo economics: faster growth *and* tax cuts without a fall in revenue as % of GDP”

But I was wrong. Chait and Krugman are discussing two different errors (3 scoops of voodoo). Mulvaney et al both counted 2.1 trillion twice *and* assumed tax cuts don’t cause any reduction in the ratio of tax revenues to GDP.

Binyamin Applebaum explains.

One example of the budget-ledger legerdemain: Mr. Trump has pledged to end estate taxation. His budget, however, projects that the government will collect more than $300 billion in estate taxes over the next decade. Indeed, the Trump administration projects higher estate tax revenue than the Obama administration did because it expects faster economic growth.

Mr. Trump, in other words, is proposing to balance the federal budget in part by simultaneously increasing estate taxation and eliminating estate taxation.

Then later and separately explains another error.

The budget’s presentation of the benefits of the administration’s economic policies also raised questions. White House officials said that tax cuts and other changes, like reductions in regulation, would push annual economic growth to 3 percent by 2020, well above the 2 percent annual average since the recession. The budget projects that the increase in economic growth will produce $2.1 trillion in additional federal revenue.

The Trump administration appears to be counting this windfall twice. It needs the money to offset the cost of the tax cuts, but in the budget, the $2.1 trillion is also recorded as a separate line item above and beyond the steady growth of tax revenues.

They are into deep Voodoo.

See also Larry Summers

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Debts, Deficits and Social Security

Dan here…I noticed several articles in the NYT (here is one forcasting Trump/Mulvaneys’ Budget Proposal 2017, contrasting safety net program cuts with the Medicare/Social Security deficit busting programs. In an aside no less. Here we go again…as if deficit spending reduction was important to Republicans, and Social Security was one of the chief problems. I am reposting Bruce’s last piece on Budget and deficit from 2014. Also see this post Social Security: Cost, Solvency, Debt and TF Ratio.

by Bruce Webb

With the release of Tim Geithner’s new autobiography the old quarrel about whether Social Security does or even can add to “the deficit” has cropped up again. So rather than weigh in let me start from a more neutral spot. CBO produces a document called the Monthly Budget Review and in Nov 2013 it carried this title: Monthly Budget Review—Summary for Fiscal Year 2013 The introductory paragraph of the Summary of this Summary reads as follows:

The federal government incurred a budget deficit of $680 billion in fiscal year 2013, which was $409 billion less than the deficit in fiscal year 2012. The fiscal year that just ended marked the first since 2008 that the deficit was under $1 trillion. As a share of the nation’s gross domestic product (GDP), the deficit declined from 6.8 percent in 2012 to 4.1 percent in 2013. (The deficit was 1.1 percent of GDP in 2007, prior to the recent recession.)

and in turn was illustrated with the following graph: Fiscal Year TotalsFiscal Year 2013 outlays and revenues
Now in the normal course of reporting CBO gives figures for any number of ‘deficits’ including ‘on-budget deficit’, ‘off-budget deficit’, and ‘primary deficit’. But here they simply reference THE ‘deficit’ without qualification. So which of the three above adjectivally modified ‘deficits’ is CBO using in this Summary of its Summary of Fiscal Year 2013? Well none of them. Instead it is using a metric which by some measures no longer exists, at least under some readings of current law. Which has led to untold confusion. Confusion which I hope to unravel a bit under the fold.

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Real aggregate wage growth finally overtakes Reagan expansion

Real aggregate wage growth finally overtakes Reagan expansion

In my opinion the best measure of how average Americans’ situations have improved during an economic expansion is real aggregate wage growth.  This is calculated as follows:

  • average wages per hour for nonsupervisory workers
  • times aggregate hours worked in the economy
  • deflated by the consumer price index

This tells us how much more money average Americans are taking home compared with the worst point in the last recession.
Let me give you a few examples why I believe that this is the best measure of labor market progress:

First, compare an economy that creates 1 million 40 hour a week jobs at $10/hour, with an economy that creates 2 million jobs at 10 hours a week at $10/hour.  If we were to count by job creation, the second economy would be better.  But that’s clearly  not the case.  The second economy is paying out only half of the cold hard cash to workers as the first.

Next, let’s compare two economies that both create 1 million 40 hour a week jobs, but one pays $10/hour and the other pays $12/hour.  Clearly the second economy is better.  It is paying workers 20% more than the first.

Finally, let’s compare two economies that create 1 million 40 hour a week jobs at $10/hour.  In the first economy, there are 3% annual raises, but inflation is rising 4%.  In the second, there are 2% annual raises, but inflation is rising 1%.  Again, even though the second economy is giving less raises, it is the better one — those workers are seeing their lot improve in real, inflation-adjusted terms, whereas the workers in the first economy are actually losing ground.

In each case, the economy creating more jobs, or more hourly employment, is inferior to the economy  that pays more in real wages to its workers,  In other words, the best measure of a labor market recovery is that economy which doles out the biggest increase in real aggregate wages.
In short, people work for the cold hard cash that is put in their pockets, and real aggregate wage growth measures how much more of that they’ve received.

With that introduction, here is an updated graph of real aggregate wages for the entire past 53 years:


So how does the current expansion compare with past ones?  Here is a chart I created several years ago showing the real aggregate wage growth in every prior economic expansion beginning with 1964:

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Republicans Can Seize a Political Opportunity by Backing Student Loan Reform

Allan Collinge is the founder of the Student Loan Justice Organization a grassroots citizen’s organization dedicated to returning standard consumer protections to student loans. The group was started in March of 2005 and has focused primarily on research, media outreach, and grassroots lobbying initiatives. located in Washington DC. From time to time Angry Bear has publicized Allan efforts to restore bankruptcy protection for student loan.

In a rare display of political courage and bipartisanship last week, Rep. John Katko (R-NY) filed the Discharge Student Loans in Bankruptcy Act with Rep. John Delaney (D-MD). This bill will return standard bankruptcy protections to all federal and private student loans. Katko is well ahead of the conservative curve on this issue and has a unique opportunity to revitalize the Republican Party in the current session by stepping up to lead the fight on this issue.

President Obama federalized the student loan system during his eight years in office and the nation’s student debt tab increased by $1 trillion. From these student loans, the federal government profits well over $50 billion annually from the student loan program, and also makes a profit on defaulted student loans. This is something no other lender of any loan in this country can claim. In fact, this is a defining hallmark of a predatory lending system. During the same time period, the price of college rose far faster than any other commodity, including healthcare, and this trend is continuing to accelerate today.

The student loan program is a structurally predatory lending system and Uncle Sam sits atop the hornet’s nest. What has caused this hyper-inflationary lending behemoth and its consequences is the fact that the Department of Education is not constrained by standard free-market protections like bankruptcy rights, statutes of limitations, and other standard protections existing for every other type of loan. Congress stripped these protections from student loans and in the end greatly destabilized the entire loan system.

Make no mistake: The Department of Education loves this freedom from free-market protections and fights tooth and nail behind the scenes to keep bankruptcy gone from its source of income. Since Trump was elected, the student loan swamp of unelected bureaucrats in and around the Department of Education have made bold moves to make this lending system harsher and more profitable.

Some true conservatives have noticed this problem and have begun to speak out. Jeb Bush, for example, put the return of bankruptcy protections to student loans as a plank in his presidential platform. Pundits and think tanks such as David Brooks and the Cato Institute have also publicly called for the return of bankruptcy protections to student loans. The issue screams out to conservatives for justice by sponsoring the Discharge Student Loans in Bankruptcy Act. By his actions, Congressman Katko is demonstrating to his colleagues that it’s fine, in fact,it is a great political benefit to stand up for the citizens, fight for free-market mechanisms, and against big government.

Sponsoring this bill will endear Katko to tens of thousands of Democratic voters who would have otherwise voted against him next year. There are roughly 100,000 people in his district with student loans, of which 63,000 are currently unable to pay down their loans.

While few of these voters would ultimately file for bankruptcy, all of them feel the predatory weight of the lending system on their backs, and all will appreciate having this constitutionally mandated power back on their side. I suspect that a large majority of these voters — regardless of party — will be strongly compelled to vote for him based upon this issue alone because it is that strongly held by these borrowers.

What is most interesting is that even if his Democratic challengers’ parrot Katko on this issue, his being a Republican makes the chances for success of the bill go up dramatically. No Democrat with the same position can claim this, and indeed we have seen similar Democrat bills flounder and fail in years past.

This is one of the hottest issues today in Congress and Congressman Katko is in the forefront of it with his bill. Other Republicans in Congress could benefit and capitalize on it to reduce the strong headwinds from Democrats in next year’s election. Republicans could do well in supporting this bill and avoid a crushing defeat.

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Tillerson Economics and the Saudi Arm Deal

ProGowthLiberal concludes ‘no net increase’ on Saudi Arabian arms deal:

The $109 billion in arms sales is for the next decade amounting to an additional $11 billion in new exports on a per annum basis. So we are talking about only 0.06% of GDP in new exports but this only gets worse if we take Tillerson at his word that as the Saudis spend more on their own defense, we spend less. In other words, exports rise by $11 billion per year and Federal purchases fall by $11 billion per year. Good news from a deficit hawk perspective but no net increase in U.S. aggregate demand. So Trump’s “jobs, jobs, jobs” amounts to nothing but his usual political posturing.

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Output Optimum and the Roller Coaster of Immiseration

Following up on my post from two weeks ago, Immiseration Revisited, I built a spreadsheet replica of the marvelous Chapman diagram. In addition to lines on the page, the replica provides me with tables of numbers that I can add, subtract, multiply and divide in accordance with the conceptual logic of the diagram.

The chart below shows the results of some of these calculations. The red curve graphs cumulative gross “output” and green curve subtracts the value of foregone leisure and the pain cost of fatigue and wear and tear from output to calculate net “income” (green). The length of each vertical line measures the values of output and income, respectively for a work week of the length indicated by the scale on the x-axis.

“Big Dipper”: the Roller Coaster of Immiseration

I have set the hypothetical “output optimum” work week at 48 hours in deference to the diagram’s 1909 vintage. Assuming such an optimum and taking the conceptual diagram’s proportions literally, the ideal length of a work week for a laborer would be 36 hours. That is the point at which the value of foregone leisure and the pain cost of additional work begin to outweigh the additional earnings from the longer week. A workweek of 40 hours marks the threshold beyond which the value of foregone leisure alone exceeds the additional wage earnings.

If the optimal output workweek was 40 hours, the corresponding ideal length of workweek for the worker would be 30 hours, again assuming the reasonableness of the diagram’s proportions. There is, of course, only impressionistic evidence for the general shape of the curves and not for the accuracy of the proportions depicted. Nevertheless, the derived calculations indicate a steep acceleration of the discrepancy between output and worker welfare beginning well in advance of the output optimum.

Calculations based on the diagram suggest that by working 34 percent more hours per week, the employee can look forward to “enjoying” 29 percent LESS net benefit. If the actual cost to workers of working longer is even half or a third of those estimates, this still would represent a significant deviation not only from what Lionel Robbins dismissed as “the naïve assumption that the connection between hours and output is one of direct variation” but also from the equally indefensible premise of a consistently proportional relationship between work effort and reward.


(Most) Economists Balk

In a recent article, “Whose preferences are revealed in hours of work,” John Pencavel noted the “radical change in economist’s thinking about working hours” following the 1957 publication of H. Gregg Lewis’s article, “Hours of Work and Hours of Leisure,” Earlier textbooks attributed reductions in hours to pressure from trade unions, either directly through collective bargaining or by legislation promoted by organized labor. The earlier textbooks also addressed the effect that hours of work have on productivity, with reductions in hours usually leading to increases in hourly output and sometimes even to “no decline in total daily output.”

In later textbooks, the orthodoxy followed Lewis’s explanation that workers choose their own hours, based on their preferences for income or leisure. The connection between output and shorter hours vanished, as did the role of trade unions in achieving reductions of working time. But, Pencavel wondered, “If ‘employers are completely indifferent with respect to the hours of work schedules of their employees,’ [as Lewis had posited] why did employers oppose so resolutely workers’ calls for shorter hours?”

In a footnote, Pencavel also mentioned that in Lewis’s 1957 model, employers face no obstacle “to replacing shorter hours per worker with more workers.” This is an interesting point because many economists’ arguments against the employment potential of shorter working time rest on claims that workers and hours are not suitable substitutes. That conclusion is reached by smuggling back in the output/hours relationship concealed in a Cobb-Douglas production function with the Robbins/Hicks “simplifying assumption” that the current hours of work are optimal for output, so that any reduction of hours would result in a reduction of output. It is difficult to imagine how both of these things can be true at the same time.

Although the earlier textbooks and economists acknowledged the connection between hours of work and output, most were silent on the discrepancy — or at least the magnitude of the discrepancy — between an output optimum and worker welfare. Cecil Pigou, Philip Sargant Florence, Lionel Robbins, John Hicks and Edward Denison treated the output optimum as the economic ideal. Richard Lester and Lloyd Reynolds, authors of “institutionalist” labor economics textbooks, showed more sympathy to trade union arguments but did not emphasize the discrepancy between the output optimum and worker welfare.

Sydney Chapman clearly distinguished analytically between worker welfare and the output optimum but his presentation was obscured by digressions that dwelt on shift-work as a palliative and on the philosophical necessity of paying more attention to the non-tangible aspects of culture. Clyde Dankert clearly distinguished between the output optimum and worker welfare but had the rather eccentric view that although “maximization of worker satisfactions” rather than output should be the social objective, shorter hours would have to be postponed “in view of the current cold war situation.” Only Maurice Dobb clearly and concisely stated what was at stake (although he left out the increasing value of leisure):

…trade unionists in the nineteenth century were severely castigated by economists for adhering, it was alleged, to a vicious ‘Work Fund’ fallacy, which held that there was a limited amount of work to go round and that workers could benefit themselves by restricting the amount of work they did. But the argument as it stands is incorrect. It is not aggregate earnings which are the measure of the benefit obtained by the worker, but his earnings in relation to the work he does — to his output of physical energy or his bodily wear and tear. Just as an employer is interested in his receipts compared with his outgoings, so the worker is presumably interested in what he gets compared with what he gives. A man who works longer hours or is put on piece-rates, and increases the intensity of his work as a result, may earn more money in the course of the week; but he is also suffering more fatigue, and probably requires to spend more on food and recreation and perhaps on doctor’s bills.

To compare “what s/he gets” with “what s/he gives” requires above all some way of estimating the value of what is given relative to what is being received. One may even suggest that constructing those estimates was the job economists should have been doing instead of castigating trade unionists and other advocates of shorter hours for adhering to a vicious “lump-of-labor” fallacy. Heck of a job, economists!

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Dean Baker’s Articles on Healthcare

Barkley has mentioned this particular article several times now. I would be negligent if I did not post a link to it so we could read it. New Health Care Plan: Open Source Drugs, Immigrant Doctors, and a Public Option, 25 March 2017, CEPR, Beat The Press, Dean Baker.

There are two obvious directions to go to get costs down for low- and middle-income families. One is to increase taxes on the wealthy. The other is to reduce the cost of health care. The latter is likely the more promising option, especially since we have such a vast amount of waste in our system. The three obvious routes are lower prices for prescription drugs and medical equipment, reducing the pay of doctors, and savings on administrative costs from having Medicare offer an insurance plan in the exchanges.

This short article is worthy of a read also. Why Do Proponents of More Immigration Never Mention Doctors? 08 February 2017, CEPR, Beat The Press, Dean Baker.

If we got the pay of our doctors down to the levels in other wealthy countries it could save us close to $100 billion a year.

More on Healthcare to follow.

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“It’s The Economy, Stupid!”: The Iranian Presidential Election

by Barkley Rosser

“It’s The Economy, Stupid!”: The Iranian Presidential Election
“It’s the economy, stupid!” quoth James Carville back in 1992, adviser to Bill Clinton during his successful presidential election campaign then. And so quoth Stella Morgana in an informative piece written a few days ago prior to and about the Iranian presidential election as linked to by Juan Cole The Iranian Election: It’s the Economy, Stupid!. For those who have not seen it yet, incumbent President Hassan Rouhani has won decisively with 57% of the vote over his main rival, Ebrahim Raisi, who got 38.5%. Rouhani is viewed as a moderate in the traditon of former president Khatami, who is under house arrest, while Raisi was supported by hard line clerics and the supreme leader, Ali, Khamenei. Many view Raisi as a potential successor to Khamenei.

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A thought for Sunday: the Left is winning the battle of ideas. The right’s own man says so

by New Deal democrat

A thought for Sunday: the Left is winning the battle of ideas. The right’s own man says so
Prof. Arnold Kling, a conservative neoclassical economist who has taught at George Mason University and been affiliated with the Cato Institute, has a post up this morning in which he  reflects upon whether he has changed his mind about anything in view of developments over the last sum of years. His reply is a notable bellwether:

I think that in general I have become more pessimistic about American political culture ….

…. What has [ ] transpired …… from college campuses [is a] view that capitalism is better than socialism, which I think belongs in the mainstream, seems to be on the fringe. Meanwhile, the intense, deranged focus on race and gender, which I think belongs on the fringe, seems to be mainstream…..

…. The Overton Window on health policy has moved to where health insurance is a government responsibility. The Overton Window on deficit spending and unfunded liabilities has moved to where there is no political price to be paid for running up either current debts or future obligations. The Overton Window on financial policy has moved to where nobody minds that the Fed and other agencies are allocating credit, primarily toward government bonds and housing finance. The Overton Window on the Administrative State has moved to where it is easier to mount a Constitutional challenge against an order to remove regulations than against regulatory agency over-reach.

I would call that a good start.

That being said, as usual I expect progress will be made one funeral at a time, as the deep, deep red Silent Generation (and primary Fox News demographic) passes this mortal coil.

__________

A postscript. Kling concludes by writing:

Outside of the realm of politics, things are not nearly so bleak. Many American businesses and industries are better than ever, and they keep improving. Scientists and engineers come up with promising ideas.

I wonder if it occurs to him that these sentences completely undercut his ideology.  After all, if evil government regulation kills innovation, well, obviously, despite the shifts in the Overton Window to the left, that obviously isn’t happening, is it?

Furthermore, if that innovation has been happening during the period of time that the Brookings Institution found, via comprehensive Social Security wage data, that workers from 1983 on made only 1% more in real terms over their entire 30 year prime age careers than the workers who entered their prime earnings age in 1957, then that innovation has not translated into *any* significant increase in the well-being of average Americans over virtually their entire working lifetimes. That is a thoroughgoing and decisive failure, well worth being replaced.

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