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

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.

Why did Paul Krugman and the Washington Post editorial board—both of whom know better—misrepresent that it was Sanders rather than the New York Daily News editorial board that was wrong about what Dodd-Frank provides, and about whether it would be Treasury or instead the financial institutions themselves that would determine the method of paring down?

As Dean Baker and several (mostly) alternative-media and hobbyist bloggers—including actual experts on Dodd-Frank and on financial-institution governance—have noted since the New York Daily News editorial board released a transcript last Tuesday of its interview with Bernie Sanders, it was not Sanders but instead members of that editorial board who were deeply confused about what Dodd-Frank actually provides.  Specifically, about whether that law grant’s the federal government authority to determine that a financial institution is so large that its sheer size poses a systemic risk to this country’s economy.

And also specifically, about whether experts within the finance industry and the Treasury Dept., and economists, think the method of any such government-mandated paring down of a financial institution—absent enactment of the Glass-Steagall-like law—should be devised by Treasury of the Fed of instead by the financial institutions themselves.

And also about whether none other than Hillary Clinton, their candidate of choice, had said during this campaign something along the lines of:

We now have power under the Dodd-Frank legislation to break up banks. And I’ve said I will use that power if they pose a systemic risk.

Which, it has been pointed out since now since Wednesday when Clinton joined the chorus of those saying that Sanders in that interview had demonstrated a lack of basic knowledge, thoughtfulness and competence about this signature issue of his, Clinton herself at last February’s debate in fact said exactly:

We now have power under the Dodd-Frank legislation to break up banks. And I’ve said I will use that power if they pose a systemic risk.

Leading me to post this here at AB on Thursday.  It’s titled:

Clinton admits she failed to do her homework, and therefore misunderstood, when she stated at the February debate that Dodd-Frank already authorizes the Treasury Dept. to force too-big-to-fail banks to pare down and that therefore no further legislation authorizing it is necessary.  That’s quite an admission by her, and the New York Daily News editorial board (and the Washington Post’s Chris Cillizza) should take note.

Which drew some blowback in the Comments thread from a couple of fellow progressives, including their insistence that Clinton did not admit that she failed to do her homework before February’s debate and therefore misunderstood, like she now says Sanders does, what Dodd-Frank actually provides.

Which in turn drew blowback from me.  Specifically:

Clinton’s statement that Sanders is incorrect that under Dodd-Frank the Treasury Dept. does have the authority to declare particular financial institutions so large that a failure of that institution would create significant danger to the economy or to the broader financial industry and therefore to the economy, and therefore would effectively require a federal bailout, is EXACTLY a reversal of what she said at that February debate when fending off Sanders’s suggestion that additional legislation is needed.

So she either was right at the February debate or she was right this week in her comments about Sanders’s interview with that editorial board, but the statements, two months apart, are mutually exclusive. Since the February one matched Sanders’s statements to the editorial board, her comment that Sanders was wrong and would know this had he done his homework sometime during the 11 months since he began his campaign, she did indeed say by necessary implication that she was mistaken in that statement at the February debate, and that had she done her homework she would have known that.

Clinton is not making the issue of NOT proposing further legislation on too-big-to-fail, but in resisting proposals for further legislation, she sure has made her claim that there is no need for it because Dodd-Frank already takes care of the problem a part of her defense against Sanders’s candidacy.

Further, since apparently there is nothing in Dodd-Frank that authorizes, much less requires, the Treasury Dept. to actually take over the financial institution and break it up, or to dictate how exactly it would be broken up, but does apparently give Treasury the authority to determine that a bank must pare down to a specified size—Clinton was right in February, and Sanders was right in his interview with that editorial board, according to Stephen F. Diamond, an actual expert on Dodd-Frank who both teaches the subject at Santa Clara Law School and advises on it in private practice—the claim by most of the news media and also by Clinton that Sanders’s statement that this is so is exactly what those folks are claiming Sanders’s statement was: wrong as a matter of fact, and indicative of a failure to do homework on the subject. Or, in Paul Krugman’s case in his op-ed piece yesterday, a deliberate misstatement. (I assume that Krugman is sufficiently familiar with Dodd-Frank to know that, although—who knows? – maybe not.)

Diamond had a lengthy post on his own blog on Thursday titled “Don’t blame Bernie – of course the banks can be broken up”, (Dan here…link corrected) which I learned of because Naked Capital posted its title and link immediately about its post of the title of and link for this post of mine.  I clicked the pingback link, saw my post listed, and saw Diamond’s immediately above mine.

The first four paragraphs read:

“In a recent interview, a very confused New York Daily News reporter continually mixed up the Treasury Department and the Federal Reserve in the face of a very straightforward statement of presidential candidate Bernie Sanders that Congress can give the President power to impose changes on the structure of the financial system “under Dodd Frank.”

“Well, the Treasury is an agency of the executive branch while the Federal Reserve is an independent hybrid public-private entity. The former is an extension of the power of the President while the latter has autonomy that limits, understandably, Presidential influence. Apparently in the minds of financial journalists the two entities can be conflated without consequence.

“Sure enough Secretary Clinton jumped on the bandwagon and slyly and indirectly suggested on Morning Joe that Bernie Sanders does not “seem” to know enough about how the economy works to be qualified as president.

“Now that we have cleared up the fact that it was the Daily News reporter who was confused not Sanders, let’s focus on the agency that a President does control, the Treasury. When Sanders said he wanted to use Dodd-Frank to break up the big banks one could consider that from two angles. First, does the current language of that law enable the federal government to break up the banks; and second, could Dodd-Frank be amended to give the federal government the power it needs to break up the banks. Since Sanders talked about going to Congress to empower the government to break up the banks it seems reasonable to conclude he means the latter, second method. But he is taking the view that any such amendment would be consistent with Dodd-Frank, a necessary extension consistent with the spirit of what Congress intended to do.”

Clinton did her usual thing: Someone fed her a line and she parroted it. I hope that at the debate on Thursday Sanders hangs this one around her neck. and tightens the noose until she gets that she needs to stop that tactic–even if she needs methadone to help her break the habit.

And, in response to a response:

Clinton said at the Feb. debate: ““We now have power under the Dodd-Frank legislation to break up banks. And I’ve said I will use that power if they pose a systemic risk.”  What can that possibly mean other than that she thought then—or was saying that she thought then, even if she did not think then—that the federal government now has power under the Dodd-Frank legislation to break up banks.   And since she said “And I’ve said I will use that power if they pose a systemic risk,” this presumably was not the first time she said that.

So she said, then and presumably earlier, that she will use that power if they pose a systemic risk.  How so? What exactly did she have in mind then?  And how exactly did she plan to exercise that power?   Did she plan then to have the Treasury Dept. dictate how each bank must pare down?  Or did she plan, as Sanders told that editorial board he would, to allow each bank to determine it, maybe with the assistance and recommendations of the experts at Treasury?

This was not merely a flip-flop by her last week; this was a statement by her that Sanders did not know what he was talking about on an issue critical to his campaign.  She’s now retracted her own earlier statements—the one during the Feb. debate and the earlier ones she was referring to in that comment at the Feb. debate—and doing so by parroting journalists who clearly have no idea what Dodd-Frank actually contains and what the actual experts suggest would be the best way to have these banks pare down (a method the banks choose or instead a method that Treasury chooses).  Did she herself not know what she was talking about when she made those earlier statements?  And what exactly are her plans?  And if she now believes that Dodd-Frank does not confer that power, does she think further legislation should do so—as Sanders has proposed?

Some of the journalists and political commentators who jumped on this bandwagon—Paul Krugman and the Washington Post editorial board, for example—do know that it was not Sanders but the New York Daily News editorial board who was clueless. Yet they chose to misrepresent—outright misrepresent—that Sanders was wrong about Dodd-Frank, the role of the Treasury Dept., and the role of the Fed, as well as the actual mechanism that would be used in paring down these financial institutions: it would be the institutions, not the Treasury or the Fed., that would structure it.

Some excellent political journalists, such as Annie Karni, who covers the Sanders campaign for Politico even late last week in reporting on Sanders referenced the NYDN editorial board interview with a comment that Sanders seemed to lack specifics about this signature issue of his (or some such).  But she and the others were just picking up what the political-opinion journalists were saying.  The editorial and op-ed folks who know the specifics of this issue quite well abuse their positions when they misstate the facts of actual legislation (e.g., Dodd-Frank) or expert policy consensus (e.g., who should determine how to restructure).  And before they again accuse Sanders of dishonesty (as Krugman does in that op-ed), they should look in the mirror.  And at their chosen candidate.

As for Clinton herself, her bandwagon-jumping nature is a big reason why so many people dislike her.  But in this instance there was the additional element of dishonesty: she knew that Sanders rather than the editorial board members had it right about what Dodd-Frank provides. She had said so publicly, recently, in a statement in which she also said she had said that before.

I added an addendum to my Thursday post, on a different matter—but it’s really part and parcel of the same one: The New York Times fact check blog had fact checked a recent statement of Clinton’s in which she said she “couldn’t believe” it when she learned that Sanders was opposing the recent Paris climate-change agreement.  Her intended implication of course was that Sanders thinks the agreement goes too far.   Both the statement itself and the intended implication were false.  Sanders supports the agreement as a first step and says much more is needed.

What’s the real story?  What’s she leaving out?  What intended inference is not true?  What connection is she implying that is false?  What word is she parsing or cutely redefining?  Both Donald Trump and Ted Cruz are habitual, maybe pathological, liars, so hopefully it won’t matter that, in Clinton, the Democrats will be nominating someone who campaigns like a used-car-salesman cliché.

Dean Baker: “An Aging Society Is No Problem When Wages Rise”

The argument behind MJ.ABW in relation to Social Security (More Jobs. At Better Wages) by real economist and mentor Dean Baker of CEPR. Also an implicit underpinning of the Northwest Plan for a Real Social Security Fix. The whole thing is short if you want to read through: An Aging Society Is No Problem When Wages Rise

The past increases in the Social Security tax have generally not imposed a large burden on workers because real wages rose. The Social Security trustees project average wages to rise by more than 50 percent over the next three decades. If most workers share in this wage growth, then the two or three percentage point tax increase that might be needed to keep the program fully funded would be a small fraction of the wage growth workers see over this period. Of course, if income gains continue to be redistributed upward, then any increase in the Social Security tax will be a large burden.

Dean Baker on the 2015 SocSec Report and Real Wage

CEPR’s Dean Baker: Wage Growth Continues to be the Key to Social Security Solvency

Dean Baker and colleague Mark Weisbrot have been making a steady case since their publication of the aptly named Social Security: the Phony Crisis back in 1999. In short Social Security does not face a structural demographic problem, instead it has encountered a contingent economic one, marked mostly by a failure of wages to grow with productivity in the ways it did in past decades. The ‘Phony Crisis’ link goes to the Introduction to the book, if you haven’t read it you should. And equally worth reading is the Press Release linked above published last Wednesday. I just want to isolate and emphasize two paragraphs from the Press Release.

Wage growth is the key to the program’s solvency for two reasons. The first is that the upward redistribution of wage income over the last three decades has played a large role in the projected shortfall. As income has been transferred from ordinary workers to those at the top of the wage distribution, a larger share of wage income has escaped taxation. When the Greenspan Commission set the cap for taxable wages in 1983, it covered 90 percent of wage income. Currently the cap only covers around 82 percent of wage income. If the cap had continued to cover 90 percent of wage income, the projected shortfall would be roughly 40 percent less than it is now.

“The other reason why broadly based wage growth is key to the program’s continuing solvency is that the burden of possible future tax increases would be much less consequential if most workers will share in the gains of economic growth. The Social Security trustees project that real wages will rise by more than 34 percent over the next two decades. (They are projected to rise by another 30 percent over the following two decades.) Even if the payroll tax is increased by three percentage points, it would take back less than one-tenth of the projected rise in before-tax wages if wage growth is evenly shared. On the other hand, if most of the gains from growth continue to go to those at the top end of the distribution, any tax increase will be a major burden.

On my reading Dean is calling for a dual approach: one that emphasizes wage growth in increasing revenue to Social Security but which also envisions accompanying tax increases. Whose affordability is that much more eased by the wage boosts. It doesn’t have to be either or, it can be MJ.ABW and NW.

More Jobs. At Better Wages. plus the Northwest Plan.

Dead people and Social Security

Dean Baker was polite in responding to another story from the Washington Post in the campaign to discredit the program:

That’s what the headline of the front page Washington Post story might have read if the purpose was to inform readers. Instead the lengthy piece (which covers the whole back page) told readers that Social Security paid out $133 million in benefits to people who were dead over the last three years.

While it is useful to weed out such improper payments, this piece likely led many readers to wrongly conclude that such payments are a major cost to the program. They are not. Nothing about the finances of Social Security would be noticeably changed if the amount of such improper payments were immediately reduced to zero.

If the Washington Post followed the NYT’s commitment to putting big numbers in context, it would have expressed $133 million as a share of the $2102 billion paid out in benefits over the relevant time frame. That way readers would realize that these mistakes have little impact on the program’s financial condition.

I find it Imp – ossible to disagree with Krugman

Recently, I was pleased to note a disagreement between Paul Krugman and Dean Baker.  Finally, I hoped, a chance to prove I am not a knee jerk acolyte of Krugman.  Sadly I found I agreed with Krugman and not Baker (ouch).  But I didn’t give up hope,

until yesterday.

Surely, I can disagree with Krugman when he disagrees with my BFF Brad DeLong ?  Even Krugman was shocked by this event “Brad DeLong has a long meditation on policy that, surprisingly, includes some things I strongly disagree with.”

But wait, there’s more.  The main think Krugman disagrees with is the analogy between the convidence fairy and the “expectations imp” which is clearly a reference to the “expected inflation imp” whose naming Delong ascribed to uh Robert Waldmann.  She is an imp because I am, more less illiterate, and inflation imp was as alliterative as I could get.

DeLong has also written that he considers an earlier Krugman post to be a smack down of us on that topic.


So what does Krugman say about the analogy

But here’s where I think Brad is getting something wrong now: when he says that

“It is unfair for Keynesians to be making fun of the people who call for austerity by saying “confidence fairy” when they are making similar expectational-shift arguments themselves.”

He’s referring to calls for the Fed and other central banks to raise expectations of future inflation as a way to get some traction in a liquidity trap — which is certainly something I and others support. But there are two crucial differences between us and the expansionary austerity types.

First, our expectations argument is a hope; theirs is a plan. I want the Fed, the Bank of Japan, etc. to target higher inflation, in the hope that it might help, but it’s a hope, and meanwhile we need to fight demands for fiscal austerity and even push for stimulus. The expansionary austerity types, on the other hand, are (or were) actually counting on the supposed rise in confidence to avoid what would otherwise be nasty recessions, which have in fact materialized.

Which brings us to the second point: those of us hoping to summon the expectations imp want to do so with policies that are at worst harmless, such as expanding the monetary base under conditions where this has no direct inflationary impact. The austerians, on the other hand, have pushed directly destructive policies — fiscal contraction in depressed economies — in order to achieve their hoped-for shift in expectations.


Oh nooooooo, I agree with Krugman entirely.  I take some comfort in the fact that Brad DeLong does too.

Trans-Pacific Partnership and US European Union free trade

Via Naked Capitalism comes more comment on two major global trade agreements also discussed here at Angry Bear. I keep wondering when our national conversation will get around to acknowledging ‘pro-business’ as having a second question to answer: which businesses mostly benefit and which lose out? And a third: what are the rules of free trade this time?

It’s a sign of the times that a reputable economist, Dean Baker, can use the word “corruption” in the headline of an article describing two major trade deals under negotiation and no one bats an eye.

Worms, Pond Scum and Economists

Dean Baker writes

Worms, Pond Scum and Economists

The effort to blame the awful plight of the young on Social Security and Medicare is picking up steam.
In the last week, there were several pieces in The Washington Post and The New York Times that either implicitly or explicitly blamed older workers and retirees for the bad economic plight facing young people today. There is now a full-court press to cut Social Security and Medicare benefits, ostensibly out of a desire to help young workers today and in the future.

Just to be clear, there is no doubt that young workers face dismal economic prospects at the moment.

This means that young people today can expect many more years of dire labor market conditions, because the remedies that could turn around their job situations have been blocked by nonsense spewing from economists. Incidentally, this situation works out very nicely for those on top, who are enjoying the benefits of record-high profit shares, which have also helped to fuel a soaring stock market.
The failure to see the largest asset bubble in the history of the world, coupled with the failure to prescribe an effective remedy to deal with the damage, should be sufficient to earn the economics profession the contempt of right-thinking people everywhere. But there is nothing too low for this group of professionals.

We are now seeing economists joining the crusade to cut Social Security and Medicare by implicitly or explicitly claiming that these programs are somehow responsible for the dismal economic plight of the young. The argument is that we can only free up money for helping our young if we take money from the old, a group with a median income of $20,000 a year.

By contrast, the upward redistribution of income to the richest 1 percent is equal to 10 percentage points of national income, or more than $1.3 trillion a year. To put this in the ten-year-budget-window context that dominates Washington debate, the amount that has been redistributed upward will be more than $16 trillion over the next decade. And that is based on the heroic assumption that the upward redistribution does not continue.

Housing wealth effect, Baker, Goldfarb and Waldmann

by Robert Waldmann

Everything is possible and I think that Dean Baker just lost a debate with a Washington Post reporter.
Post reporter Zachary A. Goldfarb  wrote

The two economists compared what happened in U.S. counties where people had amassed huge debts with those where people had borrowed little. It had long been thought that when property values declined in value, homeowners would spend less because they would feel less wealthy.
But Mian and Sufi’s research showed something more specific and powerful at work: People who owed huge debts when their home values declined cut back dramatically on buying cars, appliances, furniture and groceries. The more they owed, the less they spent. People with little debt hardly slowed spending at all.

among other things.  The link is his.

Dean Baker wrote

The housing wealth effect is one of the oldest and most widely accepted concepts in economics. It is generally estimated people spend between 5 and 7 cents each year per dollar of housing wealth. This means that the collapse of the bubble would be expected to cost the economy between $400 billion and $560 billion in annual demand.

among other things  Again the link is his.
Baker’s main point is that low consumption by underwater home owners is not a plausible explanation of the sluggish recovery.  However, he also confidently asserts that the housing wealth effect is linear based on “google it”.  I think that he has decided that new empirical research is irrelevant, because he already knew how economies work.
My comment below the fold.

In the comment I define your disagreement with post reporter  Zachary A. Goldfarb as a disagreement about whether reduced but still positive home equity causes a reduction of consumption on the order of between 5 and 7 cents each year per dollar of housing wealth or on the order of zero.

That is, I won’t address you valid points that the recovery of consumption was roughly normal while the recovery of house construction was not.

Notably Goldfarb cites empirical estimates based on micro data.  He claims there is a significant change in the slope of the home equity effect on consumption at home equity equals zero.  To say he is wrong, you must convince me that the 5 to 7 % estimate is valid for a sample containing only homeowners with positive equity.
An estimate with aggregate data just does not address the claim in the article which you criticize.
Notably, in this case the Washington Post cites specific research by named economists.  You, in contrast, cite what all macroeconomists know.
I am shocked to find that I call this one for The Washington Post.  Your conclusion may be correct, but your reasoning is based on the assumption that all functions are linear.  I don’t like to be square, but that’s not true.

cross posted with  Robert’s Stochastic thoughts

Big government pushed by the right

Dean Baker notes that liberals have let the right wing get away with the small government mythology…

It is astounding how liberals are so happy to work for the right by implying that conservatives somehow just want to leave markets to themselves whereas the liberals want to bring in the pointy-headed bureaucrats to tell people what they should do. This view is, of course, nonsense. Pick an issue, any issue, and you will almost invariably find the right actively pushing for a big role for government.
…These TBTF banks operate with an implicit subsidy from the government. Lenders expect the government to step in to back up these banks’ debt if they fail, as happened on a massive basis in 2008. As a result, TBTF banks can borrow money at lower interest rates than would be possible in a free market.
…To take another easy example, drug patents raise the price of prescription drugs by close to $270 billion a year above their free-market price. This is roughly five Bush tax cuts to the wealthy…
…Patents imply very big government since the government will imprison anyone who produces a drug without the patent holder’s consent. In recent years, big government has been actively working to extend Pfizer’s and Merck’s patent monopolies to the rest of the world through NAFTA, CAFTA, and other recent trade deals.
…While the government has been using the banner of “free trade” to drive down the wages of manufacturing workers, it has simultaneously been increasing the protection afforded doctors in order to prevent any similar downward pressure on their wages…