Serious problems found in study that supported austerity

Well that’s embarrassing:

This error is needed to get the results they published, and it would go a long way to explaining why it has been impossible for others to replicate these results. If this error turns out to be an actual mistake Reinhart-Rogoff made, well, all I can hope is that future historians note that one of the core empirical points providing the intellectual foundation for the global move to austerity in the early 2010s was based on someone accidentally not updating a row formula in Excel.

Long story short, the original study vastly overstated the correlation between high debt and low growth.

Medicare might not be so expensive in the long run after all

medicare cost projections

Sarah Kliff:

The reason for that yawning difference: Health-care costs growth has seen a steep decline over the past few years. Instead of outpacing the rest of the economy, it has grown at the exact same rate.

If that cost growth persists, it could make all the difference for Medicare: The entitlement program would, by 2085, make up 4 percent of the economy instead of the previously projected 7 percent.

Let’s still dismantle the welfare state. You know, just to be safe.

 

The United States will never turn into Greece

No, the United States Will Never, Ever Turn Into Greece:

To translate from stats-speak: our equation for non-euro countries tells us increasing debt by 1 percentage point of GDP only increases borrowing costs by 1.3 basis points. And that result isn’t even statistically significant. In other words, there is no evidence of a debt tipping point for countries that borrow in money they can print.

Yay for statistical evidence!

No one supports closing the tax loopholes the GOP is after

boehner budget

The White House wants to include tax reform in the entitlement discussion, but the Republicans will only talk if that means closing loopholes and lowering rates:

Privately, House Republican leaders think they’ve checked two of the three boxes of a grand bargain: first, the Jan. 1 tax increases; second, the spending cuts via the sequester. Now, in their view, all that’s left is entitlement reform. Top Republicans are also skeptical Obama would agree to the kind of tax reform that House Republicans have drawn a firm line on: The revenue to be generated by closing loopholes would go to lowering rates.

Too bad this strategy is unpopular with just about everybody:

But any tax expenditures, or loopholes, worth undoing already enjoy huge support from the electorate.

Will anyone really eliminate the 401(k) exemption, which allows us to park tax-free dollars in a retirement fund? Or how about that mortgage-interest tax deduction, which allows us to deduct interest from our taxes, or the capital gains exclusion, which allows us to keep any profit we make on our homes? What about the deduction for state and local taxes? How about charitable deductions?

The one easy step to fix Social Security

fix social security

Tom Edsall, for The New York Times:

The Congressional Budget Office estimates that the amount of new revenue required to bring the Social Security trust fund into balance over the next 75 years would amount to 0.6 percent of G.D.P.

The same C.B.O. document presents a series of alternative ways to achieve such a goal, including the elimination of the current $113,700 cap on income subject to the Social Security payroll tax. If the cap or ceiling were lifted, the amount of money raised would be 0.6 percent of G.D.P., the exact amount of income needed to get Social Security out of the red — a striking coincidence.

Simply taxing the top 5.2 percent of workers at the same rate as everyone else would ensure the livelihoods of millions of seniors and eliminate a significant chunk of our projected deficits.

I’d like to clarify that when I say “ensure the livelihoods,” I mean that it keeps millions of seniors out of poverty:

These facts include the following: Two-thirds of Americans who are over the age of 65 depend on an average annual Social Security benefit of $15,168.36 for at least half of their income.

Paul Ryan to cut social services to protect the military’s budget

Congress Ready to Start Work on Budget – NYTimes.com:

Mr. Ryan is also likely to propose cuts to many programs unaffected by the automatic reductions, like food stamps, Medicaid, social service block grants and farm subsidies. He would use those savings to reduce some of the automatic cuts, including in the military.

Farm subsidies I get. But are F-35s really worth cutting off food and health care from the poor? 

Also, if you think the sequester cuts are bad, wait until you see the cuts Ryan would need to pull off to balance the budget in 10 years:

To bring the budget to balance, Mr. Ryan will need at least $4.6 trillion in new savings over the next decade, on top of nearly $3.6 trillion in deficit reduction enacted over the last two years. By excluding defense and shielding Medicare and Social Security for the rest of the decade, the Ryan budget would need to cut remaining programs by nearly 23 percent, the memo concluded.

Compare that to the cuts coming due to the sequester:

  • $42.7 billion in defense cuts (a 7.9 percent cut).
  • $28.7 billion in domestic discretionary cuts (a 5.3 percent cut).
  • $9.9 billion in Medicare cuts (a 2 percent cut).
  • $4 billion in other mandatory cuts (a 5.8 percent cut to nondefense programs, and a 7.8 percent cut to mandatory defense programs).

Berkeley economist Christina Romer on increasing the minimum wage

Christina Romer Berkeley economist

Timothy Noah, for The New Republic:

In a March 3 New York Times op-ed laying out her objections, Romer began by dismissing some of the more familiar conservative arguments against the minimum wage. It isn’t true, she pointed out, that the beneficiaries would mostly be burger-flipping teenagers; half would be families now earning less than $40,000 a year. It also isn’t true that raising the minimum wage is a job-killer; “the overall adverse employment effects are small.” (In the online version, these words link to a recent literature review from the nonprofit Center For Economic Policy Research that states the case more bluntly: “the minimum wage has little or no [italics mine] discernible effect on the employment prospects of low-wage workers.”) One reason a minimum-wage increase doesn’t kill jobs is that the increase in the price of labor is balanced out by reduced turnover and a general increase in productivity.

After dismissing these arguments, Romer goes on to say that she thinks the Earned Income Tax Credit is a better instrument for helping the poor because it would boost overall employment. In response, Noah reminds us that the political climate in Washington doesn’t allow for stimulus at the expense of reducing the deficit:

Say it with me: The minimum wage can be boosted without costing the Treasury a dime. The GOP may not go for this argument, but it’s an easier sell than asking Congress to spend money.

What makes a President successful? Controlling Congress

The Powerless Presidency : The New Yorker:

The boring fact of our system is that congressional math is the best predictor of a President’s success. This idea is not nearly as sexy as the notion that great Presidents are great because they twist arms in backrooms and inspire the American people to rise up and force Congress to bend to their will. But even the Presidents who are remembered for their relentless congressional lobbying and socializing were more often than not successful for more mundane reasons—like arithmetic.

Lyndon Johnson’s celebrated legislative achievements were in reality only a function of the congressional election results—not his powers of persuasion. In 1965 and 1966, after the enormous Democratic gains of the 1964 election, Johnson was a towering figure who passed sweeping legislation. In 1967 and 1968, after he lost forty-eight Democrats in the House, he was a midget.

The President does not have some magical power that allows him to change the mind of his political opponents. President Obama’s record of compromising with Republicans during the first term shows that he understands this. Pundits who claim that Obama has somehow failed to show “leadership” by being unwilling to work with the other side are simply ignoring reality:

And Obama most certainly did try to keep that promise — to the deep annoyance of his base. To entice Republicans to a deal, the president included tax cuts in the stimulus package; he dropped the public option during negotiations of the health-care bill, and he kept all of the Bush tax cuts in 2010. This penchant for compromise continues to drive Democrats and liberals nuts and makes them wary. Former labor secretary Robert B. Reich told the New York Times last month that Obama is “still the same President Obama who wants a deal above all else and seems willing to compromise on even the most basic principle.”

Pundits like to make the point that maybe Republicans would go along with Obama on fiscal matters if he were willing to follow a “balanced” approach – improving the state of the budget through both revenue increases and spending cuts. The only problem with their argument is that Obama has been pushing for that exact approach: 

The claim that Obama campaigned “on poll-tested tax hikes alone” is just flatly false. In February of 2012, Obama submitted a budget that contained hundreds of billions in spending cuts — including cuts to Medicare. The nonpartisan Committee For A Responsible Federal Budget analyzed Congressional Budget Office numbers and concluded that Obama’s budget proposed nearly $480 billion in spending cuts — several hundred billion of which were to Medicare.

In the link above, Greg Sargent goes on to give further examples to the present day of Obama advocating for both more tax revenue and spending cuts over time. What we see is that the opposition has time and time again rejected Obama’s offers of compromise.

If the President can’t force the other side to work with him, what can be done? As Obama said during his speech on March 1st, the day the sequester went in place, the American people can tell Congress that they don’t approve of constant obstructionism:

The question is can the American people help persuade their members of Congress to do the right thing, and I have a lot of confidence that over time, if the American people express their displeasure about how something is working, that eventually Congress responds. Sometimes there is a little gap between what the American people think and what Congress thinks. But eventually Congress catches up.

Swiss ‘fact cat initiative’ goes after excessive executive pay

daniel vasella Novartis

BBC News:

Support for the plans – brain child of Swiss businessman turned politician Thomas Minder – has been fuelled by a series of perceived disasters for major Swiss companies, coupled with salaries and bonuses staying high.

Our correspondent says the main example is banking giant UBS, which wrote off billions in the wake of the 2007 sub-prime mortgage crisis, and then had to be bailed out by the Swiss government.

A further incident came in February when it was announced that the outgoing chairman Novartis’, Daniel Vasella, would be receiving a 72m Swiss francs (£51m; $78m) “non-compete” pay off over six years, designed to stop him working for other related industries.

Going after the people who profit from wrecking the economy isn’t “class-warfare” or “socialism.” It’s making sure that no one in the system is able to stack the deck in their favor at the expense of everyone else. It’s the same as going after trusts, cartels, and monopolies. We figured this out a century ago.

Sequestration: Not such a bad idea

Sequestration: Not such a bad idea.:

The key reason is that fully half the cuts are cuts to “defense” spending, and yet nobody from either party is seriously trying to maintain that America will be left defenseless in the wake of this reduced military spending. The specific sequestration mechanism is clearly awkward and clumsy, but again nobody’s saying the Mexican army is going to come swarming over the border to reconquer Santa Fe, that the Taliban is now going to be able to outspend the Pentagon, or that America’s NATO allies are now left unable to fend off a Russian invasion. That’s half the cuts with basically zero real public policy harm.

If I had to choose one thing that surprised me the most about this whole sequestration situation, it’s how little the “cutting defense will make us vulnerable!” line has influenced the discussion. If there’s anything that Republicans hate to cut, it’s defense spending – Paul Ryan’s budget proposal even calls for increasing Pentagon funding while eliminating Medicare as we know it. And yet, unless some alternate deal is arranged sometime in the next few months, defense funding will fall by over $40 billion, putting it somewhere in between 2010 and 2011 spending levels.