Robert Samuelson Fudges More Numbers

Robert Samuelson is expressing skepticism about the success of the stimulus:

There’s the puzzle: monster stimulus, midget recovery.

How to explain the contrasting stories?

If Samuelson, an economics commentator, actually followed his subject, he would be aware that the stimulus was not so big in relation to the gap it needed to cover. Dean Baker has been addressing this issue for years.

The arithmetic on this is straightforward. With the collapse of the bubble, we suddenly had a huge glut of unsold homes. As a result, housing construction plunged from record highs to 50-year lows. The loss in annual construction demand was more than $600 billion. Similarly, the loss of $8 trillion in housing equity sent consumption plunging. People no longer had equity in their homes against which to borrow, and even the people who did would face considerably tougher lending conditions. The drop in annual consumption was on the order of $500 billion.

The collapse of the bubble in nonresidential real estate cost the economy another $150 billion in annual demand, as did the cutbacks in state and local government spending as a result of lost tax revenue. This brings the loss in annual demand as a result of the collapse of the bubble to $1.4 trillion.

Compared with this loss of private sector demand, the stimulus was about $700 billion, excluding some technical tax fixes that are done every year and have nothing to do with stimulus. Roughly $300 billion of this was for 2009 and another $300 billion for 2010, with the rest of the spending spread over later years.

In other words, we were trying offset a loss of $1.4 trillion in annual demand with a stimulus package of $300 billion a year. Surprise! This was not enough.

It's not as if Dean Baker is alone in his opinion. Paul Krugman seems prescient in describing Samuelson's form of analysis:

So why does everyone — or, to be more accurate, everyone except those who have seriously studied the issue — believe that the stimulus was a failure? Because the U.S. economy continued to perform poorly — not disastrously, but poorly — after the stimulus went into effect.

There’s no mystery about why: America was coping with the legacy of a giant housing bubble. Even now, housing has only partly recovered, while consumers are still held back by the huge debts they ran up during the bubble years. And the stimulus was both too small and too short-lived to overcome that dire legacy.

This is not, by the way, a case of making excuses after the fact. Regular readers know that I was more or less tearing my hair out in early 2009, warning that the Recovery Act was inadequate — and that by falling short, the act would end up discrediting the very idea of stimulus. And so it proved.

But, you know, Samuelson found an economist you've probably never heard of before, and the guy has a position at a brand name university and a blog, so why research any more deeply into the subject? Samuelson's primary argument is that we should live in fear of dire consequences that never materialized, and thus that the government should do nothing more to stimulate the economy. Fortunately for him, the Republican Party is on his side so we're apt to see the painfully slow recovery continue to inch along. If another recession hits soon, Samuelson may discover out that the phrase, "an economy in eclipse," has more significance than as a parting shot taken at those who actually understand the subject.

Conventional Wisdom and Structural Unemployment

I saw this argument from Paul Solman, who I can't help but believe should have known better,

Liberal economist and much-respected friend Dean Baker, co-director of the Center for Economic and Policy Research, where he keeps the Beat the Press blog, has appeared on PBS NewsHour often over the years, and recently on these pages in "Don't Blame the Robots." He appeared here again Wednesday, decrying what he called the media's "mindless" budget reporting.

But when he wrote on his blog on Aug. 3 that "[t]he PBS Newshour won the gold medal for journalistic malpractice on Friday (Aug. 2) by having David Brooks and Ruth Marcus tell the country what the Friday jobs report means," he seemed curiously harsh and patently partisan.

I don't think it's either, actually, save in the sense that we're supposed to tiptoe around the fact that a lot of the analysis offered by "serious" news shows revolves around talking heads who know little about the subjects that they are discussing, but get more and more air time by virtue of their past history of being talking heads, and that it's thus "curiously harsh" to note that this phenomenon represents a manifestation of the Peter Principle. Had they invited Jenny McCarthy on to discuss the science behind vaccines, I suspect that Solman would have taken issue both with the invitation and with the implication that she had special expertise. Yet that is exactly what shows like PBS Newshour do when they present as authorities non-economists who pontificate on the economy despite a long, documented history of having paid very little attention to what actual economists have to say.

"Brooks and Marcus got just about everything they said completely wrong," Baker continued. "Starting at the beginning, Brooks noted the slower than projected job growth and told listeners: 'Yes, I think there's a consensus growing both on left and right that we -- the structural problems are becoming super obvious...'"

But, Baker insisted, "It's hard to know what on earth Brooks thinks he is talking about. There is nothing close to a consensus on either the left or right that the economy's problems are structural, as opposed to a simple lack of demand (i.e. people spending money). This is shown clearly by the overwhelming support on the Federal Reserve Board for its policy of quantitative easing."

Solmon notes that Paul Krugman agreed with Baker, then observed that while Brooks and Marcus aren't in fact describing an economic consensus their argument demonstrates how "Washington conventional wisdom... has clearly swung to the view that our high unemployment is 'structural', not something that could be solved simply by boosting demand".

If I took umbrage at those statements, my first response would be to explore whether or not there was a consensus among economists as to whether the economy's problems are structural. I would also wonder why David Brooks, who occasionally takes ill-informed potshots at his New York Times colleague, Paul Krugman, is not aware of Paul Krugman's years of argument on this subject. But instead....

Look, folks, there may indeed be no "consensus growing on left and right" about the predominance of structural unemployment, as David Brooks alleged. Just look at how vigorously Krugman and Baker took the other side. But I rather doubt Krugman's assertion that there is an "actual economic consensus" on the unemployment debate that favors his cyclical explanation to the exclusion of the structural. Unless, of course, Krugman means a consensus among economists he agrees with.

Why assume anything? Why not call other economists and ask?

A confession: Brooks is a friend for whom I have great respect, as I do for Ruth Marcus.

Well, that explains it... just not in a manner I find satisfactory.

Unlike Krugman and Baker, my main job for 36 years now has been to interview not only economists like them, but hirers and hirees, firers and firees. I've done so through both recessions and recoveries alike. I wheedled soundbites out of the drearily downhearted high tech-workers of the late 1970s and spoke to the happily hopeful hires of the late 1990s.

Then, friendship or no, there's really no excuse for the assumption. Solmon did find "A 2011 paper from the San Francisco Fed attributed 60 percent of long-term unemployment to cyclicality and 40 percent to structural factors," which is at best tepid support for Brook's' assertion that the issue is structural, but that two-year-old paper seems to be the best support he could find for Brooks' claimed consensus.

I'll admit, when I looked at the unemployment data, the fact that many workers displaced by the great recession were never again going to earn the sort of wage they had previously enjoyed, and the downward pressure on the middle class, my initial reaction to "This isn't a structural issue" was "Say way?" But in fact what Krugman and Baker are discussing is something else - the notion that there has been a seismic change in the economy such that we have to simply accept a higher unemployment rate than we have historically seen. Baker, Krugman and others have rebutted that "structural change" argument repeatedly and convincingly, to the point that if you're a business and economics reporter and are only just now taking note of it it's safe to say that you've chosen not to pay attention to material you should be covering. But Solmon seems mostly interested in the issue as a left-right political debate, and thus seems to think it's enough to circle back to Brooks as an authority.

Solmon gets partial credit for allowing Dean Baker to refute the "structural" argument, but he loses points for a response in which he changes the subject,

Baker's may be the best possible summation of the cyclicalist argument. Moreover, he may well be right: throw enough money at the economy, and at some point, everyone will be employed.

But if economics teaches us anything, it's that every decision has both benefits and costs. What might be the cost of Baker's Keynesian "Trillion-Dollar Solution"?

Baker, of course, didn't argue that the only way back to full employment was a $trillion stimulus, he simply described a theoretical means by which the economy could be brought to full employment. When you introduce an idea with, "Imagine someone found a $1 trillion bill in the street and decided that, as a public service, she would spend the money over the next 12 months to boost the economy", it's pretty obvious that you're not describing something you believe is likely to occur. Solmon then speculates about how productive newly created jobs would be, an argument that is in no way tied to the present time or economy. Solmon argues,

If the cyclicalists are right, spend a trillion dollars and new jobs will eventually emerge, as they indeed regularly have throughout American (and world) history. If the structuralists are right, however, history is in the process of changing and the government jobs will last only as long as the trillion dollars.

But the discussion was about consensus, right? And Solmon has completely abandoned the pretense that the consensus described by Brooks exists on either the left of the right. Solmon closes by offering a comment from his prior thread, in which a tech graduate describes being heavily recruited, with generous wage offers and stock options,

Those opportunities, however, are out there only for those with a set of specialized skills. If the structure of the U.S. economy is changing to employ those who have such skills and disemploy those who don't, the structuralists have a point.

But again, same as it ever was. When changes in technology and the economy led to the demise of the livery stable and blacksmith's shop, even as blacksmiths and stable hands struggled to find new work, other people were entering the job market with a very different set of skills and with far better job and income prospects. When the domestic garment industry collapsed in favor of offshore production, medical school graduates were doing better than ever. The fact that wages or opportunities in one corner of the economy are reduced even as opportunities exist "for those with a set of specialized skills" is not new - it's history repeating itself.

As Long as the Health Insurance Industry Stands to Profit....

George Will has passed along the notion that, as the penalty for not buying insurance under the PPACA has been declared a tax, it will inevitably fail to inspire people to buy insurance. I'm not sure if he's still up to doing cartwheels down the halls of the Washington Post building, but you can sense a certain smugness, pleasure at the idea that legislation intended to help uninsured, underinsured and sick people obtain health insurance - and thus health care - at an affordable cost might fail. Will's argument appears to be the latest iteration of the position Michael Gerson was pushing some months back, that if the mandate is called a "penalty" people will pay it but if it's called a "tax" they will not. Gerson's idea was that if you call something a tax, people will apply a cost-benefit analysis and decide "I'm better off paying the tax as compared to buying insurance". Will proposes,

The point of the penalty to enforce the mandate was to prevent healthy people — particularly healthy young people — from declining to purchase insurance, or dropping their insurance, which would leave an insured pool of mostly old and infirm people. This would cause the cost of insurance premiums to soar, making it more and more sensible for the healthy to pay the ACA tax, which is much less than the price of insurance.

[Chief Justice] Roberts noted that a person earning $35,000 a year would pay a $60 monthly tax and someone earning $100,000 would pay $200. But the cost of a qualifying insurance policy is projected to be $400 a month. Clearly, it would be sensible to pay $60 or $200 rather than $400, because if one becomes ill, “guaranteed issue” assures coverage and “community rating” means that one’s illness will not result in higher insurance rates.

Dean Baker responds,

There are two problems with Will's logic. First, the insurance will likely pay for many non-serious illnesses that even healthy people would otherwise have to cover out of pocket. in other words, it is not a question of paying $400 for nothing as opposed to paying $200 for nothing. It is a question of paying $400 for insurance or $200 for nothing. It is not clear that many people will make the choice that Will wants them to make.

Baker also suggests that an economic consequence could be imposed upon people who don't buy insurance:

The more important problem with Will's thinking is that there are an endless number of ways to slice and dice the restrictions so that the option of not buying insurance is less attractive. For example, the cost of buying insurance can be made higher for those who had previously opted not to buy into the system. Suppose the cost of later buying into the system rose 25 percent for each year that a person opted not to buy in. (Medicare Part B works this way and the vast majority of beneficiaries do chose to buy in when they first become eligible.) This would make the arithmetic of opting out much less favorable.

The rules can also be changed to make pre-existing conditions uncovered for the first 2 years after buying insurance for those who opted to pay the penalty rather than buy into the system. Neither of these measures would in any obvious way run afoul of Justice Roberts' argument for the constitutionality of the ACA.

I agree that such consequences could be created, but I'm not sure that they would work or that they wouldn't be self-defeating - at least the ones proposed by Baker. When applying for Medicare, most people recognize that they will eventually need Medicare Part D, and the penalties are such that it makes little to no sense to put off enrollment. I'm not sure that the populations who are being targeted by the penalty view significant health costs as that inevitable.

Similarly, one of the goals of universal health insurance is to help society avoid the increased cost of care for a manageable or preventable medical condition. If you deny somebody care for a chronic condition for a couple of years, most likely the period of years after it becomes sufficiently severe that the person wants insurance, you create the risk that excluding the condition from insurance will increase the applicant's long-term healthcare costs, and you risk their condition worsening to the point of disability, perhaps taking them out of the workforce or shortening their careers.

It may be possible to work out penalty provisions that could work, and I don't want to treat a couple of "off the top of my head" ideas as the end of the discussion, but we would have to take care not to create a penalty that would undermine the goals of universality and perhaps even increase the overall cost of care.

Baker correctly points out that if a problem develops and the Republicans in Congress refuse to address it, "that route would have nothing to do with the constitutional restrictions put in place by Roberts". History tells us that Will's belief that "Republicans will ferociously resist exacerbating the nation’s financial crisis in order to rescue the ACA" is nothing more than a fantasy - when it comes to budgeting, Republicans are good at three things: Spending money, cutting taxes and thereby reducing revenues, and then whining about the fact that due to their policies we "can't afford" to pay the bills they ran up. Will confuses their "talking the talk", insisting that we must cut Social Security and Medicare in order to balance the budget, with "walking the walk", proposing actual, concrete cuts. When you look at their actions, you have... Medicare Part D, the unfunded prescription drug benefits that the Republican's leading fiscal scolds endorsed.

I continue to believe what I said in response to Gerson's column: That if the insurance industry finds that not enough people are responding to the penalty, such that their profits are at risk, the Republicans will adjust the mandate to increase participation. I find it exceptionally unlikely that they will tell insurers, "Be patient and take the losses, because in a few years we may be able to repeal the entire law." Let's not forget, there's a reason the Republicans favored this approach back in the 1980's, and why the insurance company agreed to get out of the way of the PPACA when it was proceeding through Congress: They believe that they will profit from the reform. Going back to the status quo ante may sound good to Will, but it takes away the anticipated profit. Losing money for years, in the hope of getting back to the status quo ante? Get real. Insurance companies didn't go to Congress and say, "We can't make money with Medicare Advantage", they said, "Give us a subsidy!" And they got it.

Will argues that by virtue of the penalty's having been declared a tax, "the penalty for refusing to purchase insurance counts as a tax only if it remains so small as to be largely ineffective". That's the argument that Baker was addressing when pointing out that Congress has more options than simply making the penalty larger. But I disagree with Will's conceit that the penalty tax can't be onerous - if it's reasonably related to the actual cost of providing care to the uninsured. Also, it's not a binary issue - if the tax is increased, it will not go from "too low" to "onerous", but will be ratcheted up until it becomes sufficiently effective.

The Roberts Court pointed out that by statute the penalty can never be more than the cost of insurance - but at that point, surely even Will can understand that most people will opt to acquire the insurance they're effectively already paying for, and the tax revenues from those who do not will be more than sufficient to ensure the continuation of the program. If everybody pays a premium sufficient to pay for health insurance, but some aren't receiving benefits, the result is that there's some extra money in the system. Also, as Baker points out, the threshold at which it makes more sense to buy insurance, as opposed to paying a penalty and paying for your own care, comes well before the amount of the penalty matches the cost of insurance.

The fact remains, if the penalty proves ineffective the insurance industry will come to Congress not to argue, "Repeal this program," but to say, "Fix things so that we're profitable." And just as the Republicans were happy to subsidize private competitors in the Medicare Advantage program, they will oblige the insurance industry by increasing the penalty - whether directly or through other measures along the lines of what Baker described - or by providing a subsidy.

The Burdens of Debt

Dean Baker shared a thought-provoking post on the nation's debt, challenging conventional wisdom:

A moment's reflection shows why the debt is not a measure of inter-generational equity. At some point everyone alive today will be dead. At that point, the bonds that comprise the debt will be held entirely by our children or grandchildren. The debt will be an asset for the members of future generations that hold these bonds. This can raise distributional issues within a generation. For example, if Bill Gates' grandchildren own the entire U.S. debt there will be important within generation distributional consequences, however this says nothing about inter-generational distribution.

I agree with Baker that, right now, the government can borrow money at virtually no interest. Arguably an effective negative interest rate when inflation is taken into account. Were it possible to discuss debt in rational terms, Mitt Romney would talk about the strategy his company used to lard up acquired businesses with debt, supposedly forcing them to become more efficient but also enabling his firm to extract its massive fees and profits on its transactions.

Does Romney believe debt is always bad? Far from it, his personal history indicates that he is very concerned about household debt, but sees business debt as an entirely different animal. If he wants to run government "like a business", at least any business he's actually run, he would be declaring it foolish to not be grabbing up as much of that free money as we can stuff into our pockets.

Romney complains about and deliberately overstates the nation's debt to China, because it's a poll-tested, fear-based argument that works with his base. However, if he knows anything about trade, he knows that we run massive trade deficits each and every year, and that the trade deficit must be paid for with either public or private debt. If China is willing to give us free money to cover the difference, in essence paying us to buy its exports, does businessman Romney truly see that as a bad thing?

My problem with Baker's argument is not that I think that the money disappears, it's that I seem to place a higher value than he does on the "distributional issues" raised by servicing debt. That is, the more debt the nation holds, the more money it must raise from future taxpayers to service that debt. The balance sheet will say that the same amount taxpayers spend to service the debt is received by the holders of the debt, but if my personal experience holds I'll be the one writing that check not the one receiving the payment. Also, there's a tipping point at which the cost of servicing the debt becomes disproportionate, consuming revenue that is needed for other government activity, necessitating either cuts or additional borrowing.

I am more sympathetic to Baker's argument that the present deficits are largely a product of the recession, that there's no evidence that government borrowing is interfering with private borrowing, and that government imposes costs on people (often to the great joy of businesses) in many ways other than through deficit spending. I'm sympathetic to the argument that recessions are the times when you should worry less about deficits, and that the boom times are when we should be balancing the books. I'm convinced, both by logic and by the many failed austerity programs in Europe, of the argument that if they can be avoided a recession is not the time for austerity measures. I'm sympathetic to borrowing money to pay for the infrastructure we need to help our economy grow and flourish. At the same time I'm not able to disregard the "distributional consequences" for future generations. I might feel different if it were going to be my grandchildren who were receiving the payments as opposed to the ones making them but, alas, it won't be.

A Swing and a Miss With Ross Douthat

Ross Douthat gives himself a set-up that's a bit like T-ball - he's targeting the excesses of lobbying, politicians as pigs at the trough, how can he go wrong? Here's the swing:

Whence comes this wealth? Mostly from Washington’s one major industry: the federal government. Not from direct federal employment, which has risen only modestly of late, but from the growing armies of lobbyists and lawyers, contractors and consultants, who make their living advising and influencing and facilitating the public sector’s work.

This growth is a bipartisan affair. It’s been driven by the contracting-out of government services under both Bill Clinton and George W. Bush....

If you don’t mind congested roads and insanely competitive child rearing, all this growth is good news for those of us inside the Beltway bubble. But is it good for America? After all, like the ruthless Capital in “The Hunger Games,” the wealth of Washington is ultimately extracted from taxpayers more than it is earned. And over the last five years especially, D.C.’s gains have coincided with the country’s losses.

Strike one:

The state of life inside the Beltway also points to the broader story of our spending problem, which has less to do with how much we spend on the poor than how much we lavish on subsidies for highly inefficient economic sectors, from health care to higher education, and on entitlements for people who aren’t supposed to need a safety net — affluent retirees, well-heeled homeowners, agribusiness owners, and so on.

Let's take a look at actual expenditures on lobbying by sector. As Dean Baker points out, an incredible amount of lobbying expenditure is directed not at increased government spending, but (in my words, not Baker's) at creating barriers to competition and rent seeking.

Douthat implicitly brings up Social Security and Medicare ("entitlements for... affluent retirees"), presumably because they fit with his thesis about out-of-control spending, but makes no effort to argue that an appreciable portion of the massive investment in lobbying is directed at maintaining those programs. If he looks at his political party of choice, he will find that a tremendous amount of lobbyist money is directed at weakening those programs through privatization, voucherization and the like.

It's true that Social Security pays out without regard to whether a recipient can get by without the money, but that was the design of the program. It's true that Medicare also provides benefits to seniors who can afford to pay for more of their own care, but darn few seniors can afford to go without health insurance and Medicare came into being in no small part because of a private sector failure. If Douthat believes those programs should be means tested, as he knows, there are special interests who agree with him, and who are presently trying to convince Congress to do exactly that.

Strike two:

There’s a case that this president’s policies have made these problems worse, sluicing more borrowed dollars into programs that need structural reform, and privileging favored industries and constituencies over the common good.

But this story is one that Romney and his party seem incapable of telling. Instead, many conservatives prefer to refight the welfare battles of the 1990s, and insist that our spending problem is all about an excess of “dependency” among the non-income-tax-paying 47 percent.

Yes, the fact that business carries on as usual is a story that the Republican Party could tell if it were not, in fact, intent upon stuffing it snout right back in the trough. Mitt Romney standing up to the billionaires who are funding his campaign? Who own the back yard golf courses he adores, the NASCAR teams he doesn't watch? Are you kidding me?

Does Douthat understand that without the successful lobbying for and exploitation of tax loopholes, many of the investments made by Bain Capital would not have occurred - they would have lost money? Does he understand that Romney's exceedingly low tax rate results from the same type of lobbying for and exploitation of tax loopholes? Perhaps he hopes that Romney, if elected, will pull the ladder up after himself - close the loopholes that made him phenomenally rich and continue to expand his fortune in his present state of "unemployment". But, no, that's not going to happen.

Strike three:

In reality, our government isn’t running trillion-dollar deficits because we’re letting the working class get away with not paying its fair share. We’re running those deficits because too many powerful interest groups have a stake in making sure the party doesn’t stop.

During the brief period when we had a budget surplus, no doubt many lobbyists saw green, and no doubt (as Douthat puts it) they love a good party - but they were indifferent to the budget deficit then, just as they are now. Baker argues that the roots of the deficit lie in the collapse of the housing bubble - true in no small part, but let's not forget two unfunded wars, the Bush tax cuts, Medicare Part D.... Take away the bubble and we would still have a deficit.

On reflection, there's enough substance there, that I'll call it a foul and keep Douthat's count at two strikes. He is correct that the size of the deficit is not the result of insufficient taxation of the working class. (Even if he's too young to remember there was an age when taking people off of the tax rolls made Republicans proud.) Also, as Baker reminds us, it's fair to describe Washingtion as an "economy of exploitation [where] highly paid lobbyists thrive on efforts to manipulate government policy to advance their interests".

Two strikes, sure, but it remains an easy set-up.... Here's to hoping he does better in his next column.

David Brooks, Minstrel to Brave Sir Ryan

If only you could meet him, you would understand why people are awed. Instead you're doing silly things like looking at his words and actions? Absurd!

In relation to David Brooks' column endorsing the Republican voucher plan for Medicare, in which Brooks purports to be addressing "the paradigmatic 'moderate voter'", Scott Galupo notes, it’s bleedingly obvious that David Brooks is talking to himself"

There may be three- or four-hundred voters besides Brooks who suffer from the same perplexities. Maybe a dozen of these live somewhere besides Manhattan or Washington, D.C. The idea that any bloc of voters, let alone moderates, believes that the “priority in this election is to get a leader who can get Medicare costs under control” is ludicrously narcissistic.

Basically, the column is typical Brooks - some pretense at moderation before throwing his entire weight behind the Republican candidate. Facts? Irrelevant. Dean Baker observes,

NYT readers must be wondering whether David Brooks believes in Santa Claus. After all, he repeatedly professes his belief in the serious Mr. Ryan. This faith persists in spite of all the evidence to the opposite, including evidence that Brooks cites in arguing his case....

Since CBO works for Congress, it does what powerful members of Congress want it to do. Thus it wrote down down the numbers that Mr. Ryan instructed them to write down. However CBO was honest and clearly stated that it had just written down numbers given to it by Mr. Ryan and his staff. Unfortunately David Brooks is either too confused to understand what CBO wrote, or alternatively is deliberately trying to mislead NYT readers into believing that CBO scored a Ryan budget when it did not.

Brooks expects his readers to keep up with the Romney/Ryan game of "hide the ball", asserting (without evidence) that the Romney/Ryan privatization plan will bring about savings and efficiencies not seen in either the private insurance markets or through "Medicare Advantage" because... well, because he says so. Is it theoretically possible? Sure. But experience suggests that its unlikely to work.

This system would provide a basic health safety net. It would also unleash a process of discovery. If the current Medicare structure proves most efficient, then it would dominate the market. If private insurers proved more efficient, they would dominate. Either way, we would find the best way to control Medicare costs. Either way, the burden for paying for basic health care would fall on the government, not on older Americans. (Much of the Democratic criticism on this point is based on an earlier, obsolete version of the proposal.)

That, of course, is nonsense. The Romney/Ryan plan doesn't kick in for a couple of decades, so there's no experimentation - only assumption. If Romney and Ryan truly believed in their plan they would be asserting that it should be implemented immediately. That, right here, right now, private insurance companies should produce plans to complete with Medicare and demonstrate that they can offer superior, innovative plans at a lower cost.

Brooks predictably omits from mention the fact that the Romney/Ryan plan relies upon sleight of hand to "save" money - it caps the growth of the government's contribution toward your Medicare voucher. It's simply dishonest to pretend that the new plan would avoid shifting the burden of healthcare costs onto the elderly - Brooks knows better. That's the fundamental purpose of the proposal - to shift the risk that healthcare inflation will exceed the capped rate of growth for Medicare premiums from the government to the retired worker. If Brooks wants to make the case that the shift of risk is appropriate, he has the column in which to do it, but he has no excuse for misleading his readers about the fact that if Ryan truly believed his plan would bring about efficiencies he wouldn't need to cap premiums and shift the risk of loss to elderly individuals.

As if that's not enough, Brooks lies about the Democratic alternative to the Ryan Plan, which is to tackle healthcare inflation and waste as opposed to capping premium growth and calling it a day.

All of which causes you to look over to the Democrats and wonder: Why don’t they have an alternative? Silently, a voice in your head is pleading with them: Put up or shut up.

Certainly you can argue that the measures taken are inadequate, but the ACA is the first real effort to tackle the growth in Medicare spending. But you know what? The Republican party has demagogued against cost-saving measures. When it came to counseling the elderly on end of life issues, they spouted nonsense about "death panels". When it came to attempting to determine the cost-effectiveness of medical procedures in order to reduce unnecessary spending and waste, they demagogued about government bureaucrats deciding what medical treatment you would get. And when a number was placed on the projected savings from eliminating inefficiency they - including Mitt Romney and (brave Sir) Paul Ryan - demagogued about the Obama Administration's "raiding" Medicare.

Dean Baker noted something in Brooks' column that struck me as well,

There is one other issue worth beating up on Brooks for in this piece. At one point he says:

"I have enormous respect for Ryan and I regard most of the commentary I’ve read about him by people who’ve never even interviewed him to be ludicrous."

Huh? What planet is this guy on? It's wonderful that Brooks has had the opportunity to interview Paul Ryan. Most of us will not have that opportunity.

I suspect that's part of the back-and-forth between Paul Krugman and David Brooks, in which names are rarely mentioned. It's not that Paul Ryan couldn't pick up his phone and arrange to be interviewed by Paul Krugman, Dean Baker, or any other credible economist who takes issue with his fantasy "budget". It's that he doesn't want to. It's easy to see why Ryan will sit down and chat with somebody like David Brooks, who doesn't understand economics and who he knows will reward that access by supporting the Republican Party position in his columns. But it's just as easy to see why he won't sit down with anybody who would take him and his plan to pieces.

Even as Brooks sings his ballad of Brave Sir Ryan, the lyrics he sings give away the game. Ryan doesn't have the courage to face a worthy foe, or really anybody who is half-way conversant with the facts and willing to push him on the basics - such as why, after two years, can't he articulate the spending cuts necessary to make his "budget" work? Or why reforms supposedly essential to "saving" Medicare are pushed off twenty or so years into the future with no assurance that a future Congress will in fact pursue the plan? Bravest of the brave....

Protecting Romney from Criticism of Bain

Have you ever been in a car with somebody, waiting to pass an accident scene, while they observe that the traffic accident is not obstructing the road and that the only reason traffic is slow is because of the gawkers? And then, as they pass the accident, they themselves are distracted to the point that they don't notice that the car in front of them has driven on and they're now the gawker causing the slowdown?

The beltway pundits who call for more polite, mannered political campaigns remind me of that sort of driver. Actually, some of them seem a bit worse - some of them would stop their car in the roadway, get out, and share their opinions on the seriousness of the accident and whether it merited gawking, and offer running commentary about the other drivers passing the scene, oblivious to the fact that they've become part of the problem.

When the accident is cleared, they might recite that they're happy that it's over, but they'll keep bringing it up until the next accident comes along, and even then it may become a point of comparison. In many cases they'll talk incessantly about an accident in the northbound lane and, when you point out another accident, they'll express that accidents in the southbound lane are completely different.

Today, Robert Samuelson offers a lot of hand-wringing over problems in the northbound traffic lane, deploring what he calls "character assassination on the campaign trail". I don't follow Samuelson closely, so I am ready to stand corrected if he has in fact deplored past attacks on President Obama - Joe Wilson's outburst at the State of the Union Address, Justice Scalia's outburst from the bench, the entire "birther" phenomenon (Romney's contribution), absurd accusations that he's a socialist (in Romney's softened version, Obama "takes his political inspiration from Europe, from the socialist-democrats in Europe."), attacks on his religion, both his actual Christian faith and his imagined Muslim faith.... If Samuelson has ever demonstrated the slightest bit concerned about any of those acts of character assassination, I'm afraid I missed it.

But, oh, his heart melts for his friends in the financial industry.

Obama practices a cheap populism. He seems to presume that the complexities of the ACA and his repeated attacks on business (on oil companies, insurance companies, banks, hedge funds, private-equity funds and “the rich” in general) have no effect on the climate for investment or job creation. This is dubious.

It should be noted that Samuelson provides no context for any of this "repeated attacks", no quotes, no links. He also provides no evidence that any of President Obama's so-called attacks have resulted in any changes of policy, any economic impact, anything at all. "Dubious"? That's the best Samuelson can do? He thinks that substitutes for facts and evidence? I am aware that certain extremely wealthy people have complained that the President isn't sufficiently nice and deferential to them, and dares to suggest that they might bear some responsibility for the financial crisis and state of the economy. Samuelson apparently agrees with that. But when I look for what the President has actually said I find statements like this:

The tax cuts I’m proposing we get rid of are tax breaks for millionaires and billionaires; tax breaks for oil companies and hedge fund managers and corporate jet owners.

It would be nice if we could keep every tax break there is, but we’ve got to make some tough choices here if we want to reduce our deficit. And if we choose to keep those tax breaks for millionaires and billionaires, if we choose to keep a tax break for corporate jet owners, if we choose to keep tax breaks for oil and gas companies that are making hundreds of billions of dollars, then that means we’ve got to cut some kids off from getting a college scholarship. That means we’ve got to stop funding certain grants for medical research. That means that food safety may be compromised. That means that Medicare has to bear a greater part of the burden. Those are the choices we have to make.

Or this:

While full recovery of the financial system will take a great deal more time and work, the growing stability resulting from these interventions means we're beginning to return to normalcy. But here's what I want to emphasize today: Normalcy cannot lead to complacency.

Unfortunately, there are some in the financial industry who are misreading this moment. Instead of learning the lessons of Lehman and the crisis from which we're still recovering, they're choosing to ignore those lessons. I'm convinced they do so not just at their own peril, but at our nation's. So I want everybody here to hear my words: We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses. Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall.

Does Samuelson have another, secret example of the President being mean? Because although I can characterize the elimination of tax breaks for corporate jets as symbolic, it's more than fair to suggest that calls for sacrifice should not stop with the middle class. Yet Samuelson sees that as an attack on "the rich"? Does Samuelson see a call for the end of subsidies as an attack on oil companies? An accurate assessment of the position taken by some within the financial industry, that the bailout signaled a right to return to business as usual, LIBOR fraud, reckless trading, manipulation of commodities prices, and the like, is an attack on "banks, hedge funds" and the like? Sadly, I expect so.

I'll present a counter-point from Paul Krugman:

In the wake of a devastating financial crisis, President Obama has enacted some modest and obviously needed regulation; he has proposed closing a few outrageous tax loopholes; and he has suggested that Mitt Romney’s history of buying and selling companies, often firing workers and gutting their pensions along the way, doesn’t make him the right man to run America’s economy.

Wall Street has responded — predictably, I suppose — by whining and throwing temper tantrums. And it has, in a way, been funny to see how childish and thin-skinned the Masters of the Universe turn out to be. Remember when Stephen Schwarzman of the Blackstone Group compared a proposal to limit his tax breaks to Hitler’s invasion of Poland? Remember when Jamie Dimon of JPMorgan Chase characterized any discussion of income inequality as an attack on the very notion of success?

And I'll let you wager about which of the two gets invited to the billionaires' cocktail parties. As Krugman put it,

But here’s the thing: If Wall Streeters are spoiled brats, they are spoiled brats with immense power and wealth at their disposal. And what they’re trying to do with that power and wealth right now is buy themselves not just policies that serve their interests, but immunity from criticism.

Fear not, young bankers, Robert J. Samuelson has your back.

Why is Samuelson suddenly so concerned about "character assassination"? Why is he suddenly willing to advance the silly argument that the President's occasional, seemingly consistently accurate, statements about tax distribution and the financial industry, are somehow the cause of a slow recovery? It's pretty obvious: the President's reelection team is targeting Mitt Romney's tenure at Bain Capital for criticism, and those attacks appear to be working.

Samuelson is on the record about "character assassination," true or untrue, fair or unfair, in elections:

We have entered an era of constitutional censorship. Hardly anyone wants to admit this -- the legalized demolition of the First Amendment would seem shocking -- and so hardly anyone does. The evidence, though, abounds. The latest is the controversy over the anti-Kerry ads by Swift Boat Veterans for Truth and parallel anti-Bush ads by Democratic "527" groups such as MoveOn.org. Let's assume (for argument's sake) that everything in these ads is untrue. Still, the United States' political tradition is that voters judge the truthfulness and relevance of campaign arguments. We haven't wanted our political speech filtered.

That is, unless it's working for the other side better than it's working for our own, in which case it's, "Look at that horrible accident in the northbound lane!"

Update: The substance of Samuelson's attacks on Obama, which were peripheral to the discussion above, have been ably tackled by Dean Baker.

Update 2: If Samuelson is concerned that Obama's occasional, accurate rhetoric is going to devastate the economic recovery by hurting the feelings of bankers, oh, how he must hate the facts.

David Brooks and the Hollow Man

As is his wont, David Brooks is telling us that there are two types of people - in this case, stupid people, and people like him. The type of person who doesn't think like Brooks?

Many people on the left are having a one-sided debate about how to deal with a cyclical downturn. The main argument you hear from these cyclicalists is that the economy is operating well below capacity. To get it moving at full speed, the government should borrow and spend more....

Unlike the cyclicalists, we structuralists do not believe that the level of government spending is the main factor in determining how fast an economy grows. If that were true, then Greece, Britain and France would have the best economies on earth.

Dean Baker calls Brooks out on his hollow man argument - his creating an opponent who does not actually exist, in order to more easily swat down an argument that nobody is actually making:

I don't know anyone who looks like cyclicalists that Brooks writes about. It would be good if he could toss out a few names for readers so that we know such people actually exist in the world and are not just Brooks' hallucinations.Since the views Brooks attributes to the cyclicalists are sufficiently bizarre, it is hard to believe that such people exist.

For example, he tells us that the cyclicalists believe:

"the level of government spending is the main factor in determining how fast an economy grows."

I have never come across anyone who had a view anything like this. I do know many economists, who argue that in a downturn more stimulus will lead to more economic growth, but this is nothing like the view that Brooks attributes to the cyclicalists. Does Brooks really think it is the same thing to say that more stimulus leads to more growth in a downturn and saying that government spending is the main factor determining growth in general? This is scary.

But we all know who Brooks is attacking in his column, don't we? Even if he doesn't name the name (or present either an honest or accurate summary of his argument)? In a stunning display of the Dunning-Kruger effect, he's going after Paul Krugman. Whether or not it's official policy that New York Times columnists aren't supposed to disparage each other on the Times' own pages (print or virtual), there's been quite a bit of back-and-forth between Brooks and Krugman, and Brooks seems to be chafing at the fact that he always comes out on the losing end of the argument. By not naming Krugman, Brooks gets another advantage - he can caricature and misrepresent Krugman's arguments and then, as an ostensible defense, claim he was speaking more broadly... you know, about the other unnamed people who aren't actually making this argument.

Meanwhile, Paul Krugman has published a note to (cough) himself, pointing out the absurdity of the structuralist argument that Brooks endorses. Krugman observes,

Anyone who says something like “If deficit spending were the route to prosperity, Greece would be in great shape” should be immediately considered not worth listening to. People in my camp have repeated until we’re blue in the face that the case for fiscal expansion is very specific to circumstance — it’s desirable when you’re in a liquidity trap, and only when you’re in a liquidity trap. I know that some people like to project their own crudity onto others, but what they’re actually demonstrating is their own ignorance.

Brooks identifies three structural problems that he believes are impeding the economic recovery:

1. Productivity Increases: "Hyperefficient globalized companies need fewer workers. As a result, unemployment rises, superstar salaries surge while lower-skilled wages stagnate, the middle gets hollowed out and inequality grows." The first argument is ridiculous - Brooks thinks this is the first time in history that technology has improved or worker efficiency has increased? Or that it's somehow different from all the other times when exactly the same thing happened? And who are the "superstars" Brooks imagines to be making out like bandits? The rent-seekers he later describes - because it really seems like the biggest gains have been by those who have manipulated the system or who have survived their own incompetence by the grace of government handouts.

2. A Lack of Skilled Workers: "The United States, once the world’s educational leader, is falling back in the pack. Unemployment is high, but companies still have trouble finding skilled workers." Brooks presents no evidence in support of this claim. The actual problem appears to be that companies aren't hiring, and those that are hiring want to get "skilled workers" at bargain rates. I've seen little evidence that jobs offering competitive wages aren't getting plenty of qualified applicants. It's fair to also note that huge numbers of jobs have been lost domestically due to the availability of cheap unskilled overseas labor - it's not that domestic workers can't do those jobs, it's that the jobs are no longer in this country.

3. Rent-Seeking: "Over the decades, companies and other entities have implanted a growing number of special-interest deals into the tax and regulatory codes, making it harder for politically unconnected, new competitors, making the economy less dynamic." Which is, of course, the result of policies endorsed by David Brooks and the Republican Party.

Brooks also complains that "Running up huge deficits without fixing the underlying structure will not restore growth", which is not the argument anybody is actually making. What somebody who actually cares about the problem might observe is that the economy can benefit if the government demonstrates fiscal responsibility when the economy is strong and engages in deficit spending when the economy is weak - and positions itself to stimulate the economy that is up against the zero bound. The overt policy of the Republican Party and of David Brooks is the opposite - engage in absolute fiscal recklessness, running up huge deficits when the economy is strong, and leaving the nation unable to afford to fix the mess created by those policies during recessionary periods.

Stimulus spending would not fix the problem, but it can soften the blow. It's a bit like using raw eggs to seal holes in your radiator when you break down in the middle of the desert - you know it's not idea, you know it's not a permanent fix, but it can get you out of a bad situation much more quickly and with much less harm than is otherwise likely to result. More stimulus spending that prevented layoffs at the state level could have had a significant impact on the unemployment rate, and with more people working and consuming the rest of the economy was more likely to rebound. Although Brooks seems to find these concepts to be elusive, they're actually quite obvious. Dean Baker points to history:

...Brooks gives us the line freshly drawn from the 1935 Washington Post:

"Then there are the structural issues surrounding the decline in human capital. The United States, once the world’s educational leader, is falling back in the pack. Unemployment is high, but companies still have trouble finding skilled workers."

If you think you have seen this one before, that's because you've seen it before, and heard it repeated endlessly in all sorts of contexts. Here's the Washington Post in 1935:

"unemployment may run into the millions, but as the iron, steel, and metal-working industries improve, a scarcity of skilled workmen is developing, states the magazine Steel this week."

There are clear market signals of the sort of mismatch of jobs and skills that Brooks describes. We should see sectors of the economy where there are large numbers of job openings relative to the number of unemployed workers. We should see sectors where the average workweek is increasing rapidly. The logic is that firms who cannot find additional workers make the existing workforce work longer. And most of, we should sectors of the economy where wages are rising rapidly.

People who believe in markets would look for this evidence before making bold assertions about employers being unable to find qualified workers. By contrast, Brooks just makes this assertion with no evidence whatsoever.

Our economy has some structural problems, particularly in terms of health care costs, and many states have only addressed serious problems with their budgeting in the face of economic catastrophe. Structural problems exist and can be addressed. But Brooks' "structural" issues are, for the most part, as vaporous as the "cyclicalists" he imagines oppose him. Where do Brooks and his "structuralists" stand on the Affordable Care Act, the most serious legislation this nation has ever passed to try to address healthcare inflation?

Brooks attempts the Beltway version of "reasonableness", which is to say that our nation should prioritize dismantling the social safety net in the interest of... I guess that would be justifying the next round of tax cuts for the rich. Although Brooks states,

Mitt Romney and Representative Paul Ryan understand the size of the structural problems, but their reform plans are constrained by the Republican Party’s single-minded devotion to tax cuts.

The criticism is less of the focus on tax cuts and more of their unwillingness to actually state the social spending cuts they would make. Brooks' argument is inherently dishonest, first because Romney has run away, screaming, from any suggestion that he be specific with his actual plans, and second because Ryan's "plan" is an economic catastrophe in the making - if the structural problem is that our deficits are too large, Ryan's plan makes things worse. If Brooks is going to pretend that he cares about education and allowing the unwashed masses to get a sufficient education to compete with his elite rent-seekers "superstars" for decent jobs, Ryan should not be his hero. Ryan's beholden to the rent-seekers.

Dean Baker responds,

Finally Brooks concludes by telling us:

"make no mistake, the old economic and welfare state model is unsustainable."

This should prompt a really big, "huh?" Brooks had just been touting the German model. Germany certainly has a much more generous welfare state than the United States, even if it has been rolled back somewhat in the last decade. We could also look to Netherlands and the Nordic countries, all of whom have much more generous welfare states than the United States, yet don't in any obvious way appear to be on an unsustainable growth path. It's not clear what point Brooks thinks he is making.

Krugman comments on the absurdity of trying to fix the long-term economy instead of focusing on the short-term, pulling out Keynes' famous observation, "In the long run we are all dead".

Anything along the lines of “we need long-run solutions, not short-run fixes” may sound sophisticated, but it’s actually just the opposite.

He's right - particularly in our political system. Brooks cannot reasonably claim that our government is so beholden to special interests that it harms the economy and then pretend that those special interests will disappear from the political scene the moment that the budget is balanced. We know exactly what happened the last time we had a budget surplus, don't we? As long as the present Congress cannot bind future sessions of Congress to follow its budgets and policies, the only budget that matters is the next one.

When people claim we need some sort of overarching budgetary plan that extends over decades, and that nothing short of that is sufficiently "serious" to address our nation's economic woes, they're betraying an ignorance of even recent history - the manner in which the G.W. Bush Administration squandered the surplus with an express attitude of "deficits don't matter", and the manner in which events that are outside of our control, whether in the form of a terrorist attack, a war, a global economic meltdown, or something else, can throw a monkey wrench into the most carefully constructed long-term economic plan. They're also displaying abject ignorance of how our political system functions (some might say malfunctions). Yes, long-term plans and projections are helpful, but if you care about fixing things you need to look at what is happening right now, and any actual, observable trends.

I'll note in closing that Brooks' distinction between "cyclicalists" and "structuralists" is a false dichotomy. You won't find a single person conversant with economic issues who cannot identify structural problems in the economy, and (other than, perhaps, Brooks) you won't find a single such person who emphasizes structural problems as the root cause of our economic malaise who doesn't recognize that economies go through cycles.