We all know that David Broder and the Washington Post really really want to see Social Security cut. Under current law, nearly $4 trillion (in 2007 dollars) will have to be raised through general revenue or borrowing to repay the bonds held by the trust fund between the years 2020 and 2046. This money would mostly come from the personal and corporate income taxes, which disproportionately are paid by higher income families.

In order to prevent this impending disaster, both Broder and the Post regularly bombard readers with stories of Social Security's impending collapse. Usually these stories focus on the cost of Social Security and Medicare, since it is useful to try to trick readers into believing that the problem of our broken health care system is a problem of demographics.

Of course, if this little trick is not sufficient to scare people into supporting cuts to Social Security they still have one other clever journalistic tactic: make things up. Broder told readers on Sunday that "by most official estimates, by 2034 Medicare and Social Security will eat up 20 percent of the gross domestic product -- equivalent to the entire federal budget of today."

Well, it's not clear where "most official estimates" come from, but the Congressional Budget Office projects the combined cost of these programs in 2034 will be 13.1 percent of GDP, 6.9 percentage points less than what Broder asserted. In today's economy, this gap would be slightly less than $1 trillion or about $3,300 per person.

--Dean Baker

The NYT reported today on the reaction to the tax proposal put forward by Representative Charles Rangel, the chairman of the House Ways and Means Committee.

The article quoted Republican presidential candidate Mitt Romney as saying that Rangel's proposal is the “largest increase in the history of America.” It would have been worth mentioning that this is not true since some readers may not be aware of this fact. It also would have been appropriate to point out that charging that a particular tax increase is "the largest in history" is a Republican ritual. There have been many proposals that they have labeled the "largest tax increase in history" over the last two decades.

--Dean Baker

The NYT reports that Barack Obama is attacking Hillary Clinton because she hasn't indicated how she plans to deal with the projected Social Security shortfall. It would have been helpful to inform readers that the Congressional Budget Office projects that the program will be fully solvent until 2046, almost 30 years after the latest date that Clinton could leave the presidency. While Senator Obama may feel a need to devise a financing schedule that can maintain full funding for the second half of the 21st century, it is understandable that Senator Clinton may view other matters, like fixing the health care system, as being more pressing.

--Dean Baker

An NYT piece this morning discusses the background for the Federal Reserve Board's next move on interest rates. At one point the article tells readers that for policy makers "the core issues are consumer price inflation and economic growth," not asset prices like the recent run-up in housing prices.

This is an accurate description of current policy, with the Fed having made the decision to ignore the growth of both the stock and housing bubble. (Arguably Greenspan helped to promote the housing bubble, for example by promoting ARMs and explicitly dismissing warnings of a bubble.) However, it is questionable whether ignoring financial bubbles is consistent with the Fed's legal mandate to promote price stability and full employment. The collapse of the stock bubble led to a recession and a long period of weak employment. The collapse of the housing bubble is likely to lead to even greater economic weakness.

Given the cost associated with the collapse of financial bubbles, it is not clear that it is sound policy for the Fed to ignore their growth, even if this is in fact current policy. It would be useful to point out that Fed policy on this issue is a matter for debate, not a given.

--Dean Baker

Is that a trumpet I hear in the distance? Why are the rivers flowing backwards? And who are those four guys on horses?

Yes, the Washington Post has published a column arguing against the Social Security crisis story. Robert Ball, the former Social Security commissioner, a member of the 1983 Greenspan commission, and a great defender of the system got 700 words in the paper this morning to make the case. Read it carefully, most of us will probably not live to see another such piece in the pages in the Post.

--Dean Baker

The NYT editorialized today against some of the bailout schemes that Treasury Secretary Henry Paulson and others are trying to cook up. It then endorsed a proposal from the Federal Deposit Insurance Corporation to freeze resetting mortgages at their introductory rates, which it asserts are "typically 7 percent or 8 percent."

This is an interesting idea (not as good my own to rent scheme), but please let's get in touch with reality. The fixed rate on prime mortgages was less than 6 percent three years ago, when the mortgages currently resetting were issued. Toss in two additional percentage points for the subprime premium and these borrowers would have been looking at interest rates of less than 8 percent on fixed rate mortgages. They snapped up adjustable rate mortgages because they offered substantially lower interest rates.

The introductory rates on the mortgage now resetting were more likely in the range of 2 percent or 3 percent, not the 7-8 percent range claimed by the NYT. This means that leaving the rate at the introductory level would involve a substantial subsidy to the borrowers at the expense of the lenders. That may be warranted, but the NYT should at least give readers a clear idea of the effects of the policy it is advocating.

--Dean Baker

[Put this one in the "never mind" category. A (below) is right. I rechecked the data and a substantial portion of subprime loans did have initial rates in the 7-8 percent range.]

Most people reading Ben Stein, the NYT's Sunday business columnist, probably just think that the man has no idea what he's talking about and got his column through connections. I used to think this myself, until I read, and then reread, this Sunday's column.

Mr. Stein notes the fabulous return that some hedge fund managers have been able to reap on their portfolios, and in particular the 40 percent annual returns earned by Steven A. Cohen, the founder of SAC Capital. Stein suggests that the federal government issue enough bonds to raise $10 billion, and then let Cohen manage the money. Stein points out that if Cohen gets his usual 40 percent return, then the return, net of interest, would be 36 percent. In two years, this would net the government $8.5 trillion, almost enough to pay off the national debt. He then suggests that if Stein continued to manage the money, we could eliminate taxes and still have enough money to run the government.

Unenlightened readers are undoubtedly wincing at this painfully silly idea. But grasshopper, Stein has a very important lesson to teach us. Where do hedge fund profits come from? Stein has hit us in the face with a story that would quickly have Mr. Cohen's income consuming the entire GDP of the country. This is troubling for those of us committed to arithmetic truths. If Cohen's income takes up the entire GDP, what is left for the rest of us?

One answer to this question is that Cohen's hedge fund dealings will actually provide a huge boost to GDP so that he can earn an income equal to projected future GDP and, due to his contribution to GDP growth, there will still be as much or more left for everyone else.

Is this story plausible? Well Cohen's modus operandi is to make bets ahead of the market. He finds the winners just before they start winning and dumps the losers just before they start losing. The economic benefit from Cohen's actions is that prices adjust somewhat quicker than they otherwise would. In other words, if the proper price for IBM stock is 116, instead of the current price of 113.75, it will get to 116 somewhat more quickly because of Mr. Cohen's trades.

While getting prices right somewhat more quickly undoubtedly provides a benefit to the economy, this gain is probably too small to measure. After all, we had stock prices hugely wrong in 2000 (perhaps over-valued by 100 percent) and how much economic damage did that cause? While this massive and sustained over-valuation undoubtedly did cause harm, it is very difficult to see much damage being caused by a stock being under or over valued by 1-2 percent for a few days. In other words, it is implausible to believe that the vast majority of Mr. Cohen's income is coming from the gains that his work contributes to the economy.

Rather, Mr. Cohen's gains come from other shareholders. If he buys IBM stock before it rises, he helps to bring the stock price to its proper level, but he gets the gain rather than some other potential stock purchaser. By being faster and better informed than other traders, Cohen is able to garner earnings that would otherwise have gone to other shareholders. Higher returns for Cohen mean lower returns for everyone else.

As Cohen and other hedge fund whizzes comprise a larger share of the market, returns for everyone else will fall. (Actually, the returns on the hedge funds, many of which are bogus to begin with, will probably fall, but let's just play along for the moment.) Imagine that these folks aren't whizzes, but just inside traders -- it's the same story for everyone on the outside. To take Stein's example, suppose that Cohen got a $10 trillion check from the government to invest in the stock market, as he suggested. Let's assume that Cohen invests this money in the stock market and gets his usual 40 percent return.

The total value of the stock market is currently about $20 trillion. Given current stock valuations and an inflation rate of 3 percent, we should expect an 8 percent nominal return on this money, or about $1.6 trillion in dividends and capital gains. But, Cohen will have generated $4 trillion in earnings on his $10 trillion fund. That leaves the rest of us with losses of $2.4 trillion on our holdings. Because Cohen was quicker than the rest of us, we ended up buying high and selling low.

So, this is the true lesson that Ben Stein wanted us to learn from his column and he had to use the absurd example of having the government lend $10 trillion to a hedge fund manager to make his point. Hedge funds make their returns at the expense of other investors. The more money taken by the hedge fund boys and girls, the less for everyone else. Understand grasshopper?

--Dean Baker

As Bart Simpson says, "the Wall Street Journal is better than ever." It did take note of the third quarter vacancy data pointing out that the vacancy rate for ownership units is hovering near a record level that is more than 40 percent higher than previous peaks. The NYT and Washington Post gave this release considerably less attention (zero in the Post, as best I can tell).

The same report also gives data on homeownership rates. While the WSJ noted the overall decline the real story is the sharp decline in homeownership rates for blacks. This rate has fallen by three full percentage points since its peak in the second quarter of 2004, reversing half of the gain over the last decade. With the subprime crisis rapidly intensifying, and disproportionately hitting blacks and Hispanics, this decline is virtually certain to continue.

--Dean Baker

Yesterday, the Commerce Department reported that, before adjusting for inflation, durable goods orders were down by 8.3 percent from year ago levels (down by 1.1 percent, excluding transportation) and that new home sales were down 23.3 percent (before taking account of cancellations). The Labor Department reported that new unemployment insurance claims for the previous week were 331,000. The weekly rate had been close to 300,000 earlier in the year.

The NYT article on these releases is headlined "Reports Show Mixed Economic Picture." What exactly is "mixed" in this story?

--Dean Baker

That's right, the Washington Post continues to follow the fraternity ritual of reporting the proposed appropriation in a five-year farm bill without any context. It tells readers that the bill would cost $288 billion over the next five years.

This is known as a fraternity ritual because it is a completely meaningless gesture. Almost none of the Post's readers has any idea of what $288 billion in spending over five years means. It's a really big number -- none of us will ever see $288 billion. It would also be a really big number, and mean pretty much the same thing to most readers of it were $28.8 billion in spending over five years or $2,880 billion.

The Post could put this number in a context that would convey information to readers. It could tell them that the proposed spending is equal to approximately 1.8 percent of projected spending over the next five years or alternatively that the spending comes to $192 per person per year. But, providing information is not part of their ritual.

--Dean Baker

Many news stories covering the release of data on new home sales in September highlighted the increase from August, presenting the new report as positive news. Such reporting really missed the boat. The August sales data had been revised sharply downward. The 770,000 annual sales rate reported for September was 25,000 lower than the 795,000 sales rate originally reported for August. The September rate is 23.3 percent below the sales rate of September 2006 and 37.0 percent below the September 2005 level.

In fact, these comparisons actually understate the falloff in sales. These sales numbers do not include cancellations. Two years ago the cancellation rate was near zero. (Why cancel a home purchase when you can resell it to someone else for 10 percent more than you paid?) Many major homebuilders now report cancellation rates in the range of 30 to 40 percent. If we assume a cancellation rate of 15 percent, then the sales rate is down by almost 50 percent compared with its level of two years ago.

A cancellation rate of 15 percent would mean that the 523,000 inventory of unsold homes reported for September is equal to nearly a full year of sales, a post-war record. This is not good news for the housing market.

--Dean Baker

The NYT article on the extraordinary decline in existing home sales reported for September discussed the potential impact of a sharp decline in house prices on the economy. It gave the range of estimates of the potential decline as $2 trillion to $4 trillion in lost housing wealth. It is worth noting that if house prices fell back to their long-term trend levels it would imply a loss of $8 trillion in housing wealth.

Most economists have been hugely overconfident about the state of the housing market and have underestimated its potential negative effects on the economy. It therefore would have been appropriate to include more pessimistic assessments in this piece.

--Dean Baker

BTP readers will remember Washington Post columnist Dana Milbank as the person who tried to convince readers that Social Security will be bankrupted by the baby boomers. He's back this week trying to confuse people about where their tax dollars are going.

Milbank has an article highlighting the courage of Senator Tom Coburn, who has decided to target $400 million worth of earmarked spending. Mr. Milbank thinks that going after such spending is the height of political courage.

I am no fan of earmarks, but if Mr. Milbank was serious about informing readers he would describe the appropriations in question in contexts that would make them meaningful to readers. So cutting the $500,000 earmark for the "Virtual Herbarium" in New York would reduce spending by 0.00002 percent. If the brave senator succeeds in his effort the savings will amount to 0.2 cents per person.

Cutting the $100,000 in funding for the celebration of Lake Champlain's quadricentennial will reduce the budget by 0.000003 percent, saving taxpayers 0.03 cents per person. And the elimination of the $50,000 for an ice center in Utah will cut the budget by 0.000002 percent and save taxpayers 0.02 cents per person.

In fact, Mr. Coburn's whole list of earmarks amounts to 0.013 percent of federal spending or $1.34 cents per person. Put another way, it's equal to what we are currently spending every 19 hours on the wars in Iraq and Afghanistan.

Senator Coburn is of course free to place his priorities wherever he likes. And, Mr. Milbank certainly is free to champion the senator's efforts. But, he does have an obligation to inform, rather than mislead, his readers. It is unlikely that many readers of his column recognize how completely inconsequential these earmarks are relative to the size of the budget, the budget deficit, or family tax bills. This could have been easily remedied if Milbank had put these numbers in a context that would make their importance clear to readers.

--Dean Baker

Amazon reported higher than expected third quarter profits and a 41 percent increase in revenue, a good enough showing to push its stock price back to tech bubble peaks. One item missing from the accounts of Amazon's good news is the continuing subsidy that it gets from taxpayers.

While most stores must charge customers state sales tax, Amazon and other Internet retailers enjoy a special subsidy. They need not charge sales tax except in the states where they have a physical presence. (I believe that list is Washington and Utah.) That's great news for Amazon, if we assume that state sales taxes would average 4 percent on annual sales of $15 billion a year, then taxpayers are subsidizing Amazon to the tune of $600 million a year, more than its annual profits.

It would be nice if this subsidy was occasionally discussed in news reports on Amazon. There is no obvious economic or policy justification for having Wal-Mart shoppers subsidize Amazon, and the relatively more affluent people who shop at Amazon and other on-line retailers.

It is often reported that Amazon's president, Jeff Bezos, is a brilliant businessman. I suppose getting this sort of subsidy, and not even having it be a serious topic of political debate, does earn him this title.

--Dean Baker

A new Labor Department regulation is making it easier for employers to adopt automatic enrollment policies for 401(k) plans. Under automatic enrollment, employees are included in a 401(k) plan, with a deduction from their paycheck, unless they ask not to be in the plan. Currently, the default is that the employee is not in the plan, unless they request to participate.

In reporting on the regulation, USA Today told readers that the increased use of automatic enrollment is expected to add between $70 billion and $134 billion. With a workforce that will average more than 150 million over this period, that comes to between $470 and $900 per worker. Since the new regulation will affect perhaps 10 percent of the workforce at some point in their career, the gain to retirement savings will average between $4,700 and $9,000 for the workers affected.

It would have been useful for the article to put some context on the importance of the potential gains from this new regulation.

--Dean Baker

Articles on proposals for fixes for the alternative minimum tax (AMT), whether temporary or permanent, usually describe these fixes as being expensive due to the lost tax revenue they imply. This is misleading.

The income brackets for the AMT are not indexed to inflation. This means that if there is no "fix," then the tax will apply to people further down the income ladder every year. At this point, the absence of a fix would cause an additional 20 million taxpayers to be subject to the AMT.

Congress has always voted to install a fix because there would be a huge political backlash if so many middle income people suddenly experienced the tax increase implied by the AMT, and everyone expects that there will continue to be fixes in future years. However, by delaying the fix until the last minute, the revenue that would be generated without a fix is included in budget projections, understating the size of the projected deficit.

The Congressional Budget Office routinely reports the cost of "fixing" the AMT throughout its projection period. It would be appropriate for reporters to include this cost when discussing deficit projections, since it is virtually certain that such a fix will take place.

--Dean Baker

In its report on the latest Republican presidential debate, the Washington Post reported that Fox news reporter Britt Hume was "incredulous" that Representative Duncan Hunter thought that trade policy was an important factor in dealing with projected shortfalls in Social Security and Medicare. The article seemed to imply that Mr. Hume's reaction was reasonable.

Actually, it is very reasonable to cite trade in reference to these shortfalls. The growth in wage inequality over the last quarter century is responsible for more than half the 75-year shortfall projected by the Congressional Budget Office for Social Security. Increasing wage inequality has caused the share of wage income falling over the taxable cap for Social Security to increase from 10 percent in 1983 to almost 17 percent at present.

Trade policy has been an important factor in the rise in inequality. Trade can also be an important factor in reducing inequality. If policy is focused on increasing competition in highly paid professions then a larger share of wage income will again fall underneath the taxable cap. Perhaps more importantly, if trade policy is oriented toward improving the living standards of ordinary workers they will be far less concerned about the possibility that in thirty or forty years they will see the same sort of tax increases they experienced in the decades of the 50s, 60s, 70s, and 80s.

Trade can also go far toward alleviating the projected shortfalls in Medicare. If Congress proves incapable of repairing the U.S. health care system, Medicare can reap enormous savings by allowing beneficiaries to buy into the health care systems of the countries with longer life expectancies than the United States.

It is surprising that Mr. Hume and the Post are apparently unaware of the importance of trade to these two programs.

--Dean Baker

In an editorial arguing for the continuing need for the International Monetary Fund, the Washington noted its "reputation for objectivity."

This no doubt prompted roars of laughter among those familiar with IMF projections. The IMF has an especially bad habit of projecting good things for those who do policies it favors, while projecting bad things for those who don't follow its dictates.

This is best demonstrated by its growth projections for Argentina. In the 90s, Argentina was an IMF poster-child, privatizing everything in sight and maintaining a currency peg with the dollar. In 2001, Argentina was forced to abandon the peg, and defaulted on its debt, leading it to be come known as the "A-Word" in the halls of the IMF. In the late 90s, the IMF systematically over-projected growth as the currency peg threw the economy into a deepening recession. In the post-default years, the IMF consistently under-estimated growth, Argentina's economy boomed in spite of the IMF's dire forecasts.

Perhaps the IMF enjoys a reputation for objectivity at the Washington Post, but not anywhere else in this world.

--Dean Baker

I do my best to just ignore Ben Stein's columns in the Sunday NYT, but for some reason I looked at the latest one. Guess what -- most mortgages are not in default, most people who want jobs have them!!! I guess times have never been better.

Stein is again noting that the likely cost of defaults in the subprime market are relatively small, he therefore concludes that we have nothing to worry about. What Stein failed to notice is that the reason defaults in the subprime market are soaring is that house prices are falling, and in many former bubble markets, like San Diego, Las Vegas, Tampa, Phoenix and Miami, they are falling at double-digit rates. We may see as much as $8 trillion in housing bubble wealth disappear before the incredible excess supply of housing dissipates.

That is a big deal, even in a $14 trillion economy. It is virtually certain to lead to large cutbacks in consumption, since people can no longer borrow against their homes. It will also lead to defaults well beyond the subprime segment as many homeowners will opt not to repay $400,000 mortgages on $250,000 houses.

But, Ben Stein isn't worried because the stock market is at a record high (not adjusting for inflation). Stein undoubtedly thought that things were just fantastic in Japan in 1989. After all, the Tokyo stock market was worth twice as much as the U.S. market. How could things be better?

--Dean Baker

The NYT has a fascinating column showing the 20 corporations with the greatest market equity in 1989, 1999, and 2007. The list is fascinating for two reasons.

First, there is a surprising amount of turnover: Only four of the top twenty in 1989 were still there in 2007. The other striking feature is the extent to which this list is driven by market bubbles. Fourteen of the top twenty, including the top four, were Japanese companies in 1989. Not one of these companies was still listed in the top twenty in 2007.

There was a similar story in 1999 when fourteen of the top twenty, including six of the top seven, corporations were located in the United States. Only five of these fourteen still appeared in the top twenty in 2007.

The big star at the moment is China, with eight of the top twenty and three of the five most valuable corporations. One could reasonably speculate that there is a bubble at work here, although over a longer time Chinese firms can be expected to increasingly dominate this list.

--Dean Baker

In an article on recent trends in immigration from Poland to Britain, the NYT repeatedly refers to the need for such immigration to prevent labor shortages. This is a strange comment.

Britain has a market economy, not a centrally planned economy. In a market economy, prices adjust to supply and demand. If there is an inadequate supply of workers to do things like working as custodians, restaurant work, or to work in other traditionally low-paying jobs, the market will cause the wages of these workers to rise. At a high enough wage, more workers will be willing to do these jobs. In addition, the price of services increase, so that the demand for this labor falls. In a market economy, higher wages are the mechanism through which labor shortages are eliminated.

The result of this market process is that workers in low-paying occupations are paid more money and the price of the services they provide increases. While this improves the standard of living for people in low-paying occupations, it does have a negative impact on the standard of living of more highly paid workers (like doctors and journalists) and people who get their income from capital. (Of course the winners and losers would be reversed if Britain focused on immigration of highly educated workers.)

At one point the article claims that immigration has benefited England's economy, noting a report that showed immigration added $12.3 billion to its economy in 2006. This is equal to 0.5 percent of GDP. It's not clear from the article whether this increase refers to the effect of a single year's immigration or immigration over some longer period of time. But, assuming the former (which seems more plausible), the report would seem to imply that immigration actually lowered per capita in Britain. The rate of immigration of Poles alone would have increased Britain''s population by more than 0.6 percent, implying that the net effect was a decline in per capita income of 0.1 percent last year.

--Dean Baker

The Washington Post columnist dedicated his column today to a $1 million earmark (0.3 cents per person) for a museum dedicated to Woodstock. This may well be a waste of taxpayers' money, but it is wrong to imply that such waste amounts to a big factor in the budget or budget deficit. (For another comparison, the $1 million is approximately equal to what we'll spend in 3 minutes on the Iraq War.)

--Dean Baker

The NYT reported that Senator Clinton proposed "big grants" to states that adopt paid family leave laws. According to the article, the grants would cost $1 billion a year. This is equal to approximately 0.03 percent of the federal budget or $3.33 in tax dollars per person per year. Alternatively, the cost of the grants is approximately equal to what the United States spends on the Iraq war in 46 hours.

--Dean Baker

The NYT had an article today on the Republican candidates positions on global warming. At one point it reports that Senator McCain has supported a cap and trade system, but opposes a carbon tax. According to the article, Mr. McCain said that he opposed a carbon tax because he "opposed new taxes but that he also believed that poor workers who tended to commute to work longer distances would be disproportionately affected."

A cap and trade system would create a certain number of tradable carbon emission permits which can be auctioned off or distributed through some other mechanism. This would lead a price to associated with carbon emissions just as a tax would. A poor person commuting to work would pay more for their gas because the oil carbon had to buy carbon permits just the same as if they had to pay a carbon tax. From the standpoint of commuters and the economy there is no obvious difference between the impact of a cap and trade system and carbon taxes, if they are set at a level where they bring the same reduction in emissions.

The article should have noted this point and informed readers that Mr. McCain either does not understand his own proposal or is not being honest with voters.

--Dean Baker

This is the beginning of an editorial on proposals to increase the national saving rate:

AMERICANS DON'T save enough. For the past few years, Americans have been saving less than 1 percent of their disposable incomes, down from 11 percent in 1984. The problem may be ameliorated by wealth that's accumulated in the form of appreciated housing values and a growing stock market.

--Dean Baker

Most of the discussion of the subprime crisis has focused on the inability of moderate income homeowners to meet the higher payments after adjustable rate mortgages reset to higher rates. While this is an important issue, the more fundamental problem is simply that house prices are falling.

This point is illustrated beautifully by a chart accompanying an article in today's NYT showing default rates for subprime adjustable rate mortgages (ARMs) issued in 2005, 2006, and 2007. The default rate for each year rises dramatically for the same number of months after issuance. The default rate for subprime ARMs issued at the start of this year is already 8 percent. The default rate for subprime ARMs issued in 2005 is 16 percent, 32 months after issuance.

This numbers are so striking since the vast majority of these mortgages have not reset yet. Even most 2005 mortgages have not reset, since the most common period is 36 months. In other words, the reset is not the problem with these defaults, people simply cannot afford their homes or realize that they owe more than the current value of their house, so they opt to walk away from it.

The problem of falling house prices of course affects all homeowners, not just the subprime market. This is why we should expect much higher default rates in the future. Look for the Fed to be surprised.

--Dean Baker

Given the Post's crusade to cut Social Security, it is reasonable to ask whether Dana Milbank got a huge bonus for his column today. He is REALLY alarmed that President Bush's Social Security trustees project that the program will face a shortfall in 34 years. (The non-partisan Congressional Budget Office projects that the program will be able to pay all scheduled benefits for the next 39 years with no changes whatsoever.)

Milbank is either too young or to old to remember that Social Security had faced problems in the past. In 1983, the program literally ran out of money. Guess what? No one missed a check. President Reagan and Congress set up a commission (chaired by Alan Greenspan) and they produced a compromise package that is now projected to leave the program fully solvent for 63 years.

While it would not be advisable to wait until the trust fund is empty, we are still 39 years from our next 1983. Mr. Milbank must think that this country is in great shape if he thinks this distant and relatively minor problem should be at the top of the national agenda.

Btw, if we changed our immigration rules so that the Post and other news outlets could freely hire more qualified columnists than Mr. Milibank at lower wages, it could eliminate close to half of the projected shortfall by bringing a larger share of wage income under the cap on the Social Security wage tax. This would be a real win-win policy. Where are the free-traders?

--Dean Baker

The NYT reports that the Treasury Department is coordinating the creation of a bailout fund that will be financed by several major banks, which will act to support the market in some of the exotic investment vehicles that they developed over the last decade. This should be reported as what it is, a bailout by the nanny state for the big boys who lack the ability to get by on their own in a free market.

The billionaire welfare boys will insist that this is not a government bailout because it does not use government money. They know better and so should the reporters who cover these issues.

Suppose that I decide to take a bet by investing in cattle futures. i know that one of the risks I face is that there will be a market run on cattle, depressing their price for a long period of time, or at least past the date where I will be forced to unload my futures.

Now suppose that the government steps in with major financial actors to ensure that there are no temporary plunges in cattle prices, in effect stabilizing the market. This hugely increases the value of my bet on cattle futures.

This is exactly what the Treasury Department has done with the banks and their complicated investment instruments. The bailout may prove insufficient (these boys have shown a remarkable ability to be surprised by the weakness in the housing market recently), but it is nonetheless a government bailout that is of considerable potential value to the beneficiaries.

Arguably this bailout is still in the general public interest, since stable financial markets (assuming that the assets are actually stabilized near their long-term price) are desirable, but it is a subsidy to the banks for which the public may want to be compensated. After all, if people can get so bent out of shape about a $500 a month TANF check to mothers getting welfare, how would they feel about subsidies worth tens of billions of dollars to the richest people in the country? But, the media has to first inform the public about this act of charity to the wealthy.

--Dean Baker

It is cute when children are surprised. Their eyes light up as they discover new information about how the world works. The same sense of surprise is less endearing when it applies to central bankers. Yet,
that seems to be the fashion these days:

Let's take this quote from the minutes of the May 9th meeting:

"The incoming data on new home sales and inventories suggested that the ongoing adjustment in the housing market would probably persist for longer than previously anticipated."

And from the from the August 8th meeting we have:

"developments in mortgage markets during the intermeeting period suggested that the adjustment in the housing sector could well prove to be both deeper and more prolonged than had seemed likely earlier this year."

and then on September 18th we find that:

"participants noted that recent data suggested greater weakness in the housing market than had previously been expected"

It is disconcerting to hear that the weakness is the housing market is greater "than had previously been expected" will be "more prolonged than had seemed likely" or would persist longer "than previously anticipated."

The members of the Federal Reserve Board are supposed to be knowledgeable about the economy and therefore should not be continually surprised by events. The fact that they have been repeatedly surprised by the weakness in the housing market raises serious questions about their competence. The Fed's repeated expressions of surprise warrant attention in the media, which they have not yet received.

(Thanks to Tom Schlesinger of the Financial Markets Center for this one.)

--Dean Baker

The NYT reports that Brazil, Argentina, and Chile "are struggling to maintain sufficient natural gas supplies after several years of strong economic growth." Strong growth could explain energy shortfalls in Argentina and Chile, whose growth rates have averaged 8.6 percent and 5.0 percent over the last five years, respectively, according to IMF data (including projected growth for 2007). By contrast, Brazil's growth has averaged just 3.6 percent over this period. That hardly constitutes "strong" growth for a developing country.

--Dean Baker

Yes, this country still has good-paying jobs for the unskilled.

--Dean Baker

Commentators on Tuesday’s Republican debate had much to say about former Senator Fred Thompson’s demeanor and delivery in his first presidential debate, however they failed to note the fact that he wants to default on a portion of the federal debt.

Mr. Thompson proposed changing the indexation formula for Social Security, linking benefits for new retirees to the consumer price index rather than wage growth. According to the projections from the Congressional Budget Office, this would reduce benefits for new retirees by 1.16 percent a year compared with currently scheduled benefits. This means that benefits would be 11.0 percent lower for workers retiring 10 years after the Thompson plan takes effect, 20.8 percent lower after 20 years, and 37.3 percent lower after 40 years.

This plan essentially amounts to a default on the government bonds held by the Social Security trust fund, since it implies that the bonds held by the trust fund will never be used to pay Social Security benefits. By 2009 the trust fund will already hold $2.4 trillion in government bonds and will be accumulating more than $200 billion a year.

Since the money to purchase the bonds came from a regressive wage tax, and the money to repay the bonds comes from general revenue, which is raised almost entirely through the progressive individual and corporate income tax, Thompson’s proposed default would amount to a massive transfer of wealth from low and middle income workers to the richest people in the country.

It would have been reasonable to give Senator Thompson’s proposal to default on a portion of the government debt (the first default in U.S. history) at least as much attention as his demeanor at the debate.

--Dean Baker

Let's see, raising auto mileage standards would mean that the cars sold in the United States use less gasoline for each mile driven. Unless the savings on gas causes people to increase their driving enough to offset the improved mileage (pretty unlikely), then higher auto mileage standards will reduce carbon dioxide emissions from the auto sector. Unless this action spontaneously causes an increase in emissions from some other sector (also pretty unlikely) then we can say that mileage standards will reduce overall emissions of carbon dioxide.

I don't think anyone still disputes the link between carbon dioxide emissions and global warming, so then why does the NYT tell us that it is just liberals that think that mileage standards will "combat global warming?"

Clearly there can be differences about whether higher mileage standards are the best mechanism to combat global warming, but there is no serious dispute that they can slow global warming if implemented.

--Dean Baker

During the last debate for the Democratic presidential candidates Senator Clinton was asked about Social Security. In her response she made the obviously true statement that the key to dealing with the problem is to maintain a strong economy. (The issue is supporting retirees, if we have a strong economy we can do this, if the economy is in bad shape, then this is a problem regardless of what we do with Social Security).

She also made the somewhat confused assertion that the projected date for the SS Trust Fund's depletion had been pushed back to 2055 under the Clinton I administration. (I think that she may have been referring to the first set of projections for SS put out by CBO, which put the date of depletion at 2052.) While the economy did experience healthy growth in the last four years of the Clinton administration, and the projected date of trust fund depletion actually was pushed back several years by the SS trustees, this was actually due to a cut in benefits, not more rapid economic growth.

The benefit cut is due to the fact that the consumer price index (CPI) was changed to show a lower rate of inflation. Most economists estimate the impact of the methodological changes in the CPI at about 0.5 percentage points, meaning that if the economy had the same actual rate of inflation, the current CPI would show a half percentage point lower rate of inflation than the old CPI. Since benefits following retirement are indexed to the CPI, the change in the index amounted to a cut in benefits for retirees that increases at the rate of 0.5 percent each year.

The trustees slightly increased their projections for real wage growth and real interest rates in the late 90s, although by less than the 0.5 pp that would have been implied by the changes in the CPI. In other words, the trustees actually lowered their projections for real wage growth in the late 90s. (If anyone wants to have some fun, send a letter to SSA and ask about the changes in projections for real wage growth over this period. You will get a nonsense answer. If you are in the BTP golden circle, you can send the answer to me and I will highlight the nonsense portion of the answer for you.)

Anyhow, this is an interesting (to me) piece of Social Security trivia -- strong growth does improve the solvency of the system, but the improvements in the projections in the late nineties were due to hidden benefit cuts, not strong growth.

--Dean Baker

The NYT has a nice piece reporting on the fact that we are paying than ever for dental care, yet the percentage of people who have untreated cavities is on the rise. At the center of the story is the fact that dentists restrict entry into the professional, driving up average compensation close to $200,000 a year.

For some reason, the piece never mentions the restrictions that prevent foreign dentists from practicing in the United States. If enough foreign dentists entered the country to lower average compensation to $150,000, this would save patients $7.5 billion a year. If enough foreign dentists entered the country to bring average compensation down to $100,000 a year, this would save patients $15 billion a year or $50 per person per year.
Why is protectionism only a problem when the immediate beneficiaries are auto workers or textile workers?

--Dean Baker

The coverage of Clinton’s retirement proposal has largely missed one of the big advantages of the system that she is proposing. Clinton would make a low-cost 401(k) available to every worker in the country, modeled on the federal employees’ Thrift Savings Plan. According to estimates from President Bush’s Social Security Commission, as well as other sources, the fees on such a system would average just 0.3 percent of the money in the accounts. This compares with an average annual fee of 1.0 percent charged by private sector financial firms. The Government Accountability Office found that some
higher cost firms charged more than 1.5 percent of the money in the accounts in annual fees.

Senator Clinton’s system could also allow workers to turn their accumulation into an annuity (an annual payment that continues for life) at retirement at almost no cost, as opposed to private insurers, who typically charge fees in the range of 10-20 percent. For a worker who places $1,000 a year into an account for 30 years and has it matched by an equal sum from the government, these savings on administrative costs and annuity fees amount to more than $12,000 compared with investing with an average private sector financial firm. The savings compared with higher cost firms could be exceed $30,000.

This potential savings on administrative fees is one of the main benefits of Senator Clinton’s proposal. It should have been received more attention in the coverage.

--Dean Baker

China has pegged its currency against the dollar in order to sustain its export market in the United States. It is interesting to note that this policy is proving to be increasingly costly to China. According to the NYT, China's central bank is now buying dollars at the rate of $40 billion a month in order to keep down the value of the yuan relative to the dollar. At this rate of buying dollars, China's central bank will aquire another $1 trillion in just over two years.

To realize the cost of this to China, the dollar has fallen by close to 10 percent against the euro in the last year. If China held $700 billion in dollars (70 percent of its foreign exchange reserves), then its "high dollar" policy cost it $70 billion last year. If it acquires another $1 trillion and the dollar then drops another 10 percent, the loss would be $170 billion.

--Dean Baker

Well, it looks like Friedman is too cowardly to proiduce such a plan. He's prepared to let people keep using meters and kilos indefinitely, and leave the problem to future generations.

Yes, the issue is Social Security. Friedman is again in the scare the kids mode. Beating up on retirees is in fashion, apprarently beating up on the health insurance, pharmaceutical industry and doctors' lobby is not. Therefore Friedman whines about the need to fix Social Security, a system that is projected to be fully solvent for almost 40 years, with no changes whatsoever. He doesn't talk about the country's health care system which is projected to be the major source of the country's economic and budget problems.

It is unfortunate that the non-problem of Social Security gets so much more attention than the real problem of the health care system.

--Dean Baker

USA Today reached deep into the storeroom of distortions and misrepresentations to try to scare people about the "looming bankruptcy" of Social Security. This line appeared in the first paragraph. It gives "looming" a new meaning, since the Congressional Budget Office (CBO) projects that the program will be able to pay all scheduled benefits for the next 39 years with no changes whatsoever. If we have changes comparable to those put in place in each of the decades from the 50s through the 80s, then the program will be fully solvent until almost the end of the century.

In fact, the baby boomers hardly pose a major crisis for Social Security as demonstrated by the fact that most of the boomers will be dead at the point the trust fund is projected to be depleted in 2046. The real problem with Social Security is that we are projected to live longer lives. Life expectancy has always been increasing and poses no greater threat to the country in the future than it did in the past.

As CBO director Peter Orszag has repeatedly pointed out, the real source of the country's projected budget problems is the projected growth in health care spending. The U.S. already spends twice as much per person than the average for other wealthy countries. If it health care spending continues to grow at the projected rate, it will devastate the private sector and also lead to enormous budget problems. If the health care system is not fixed, the country will face enormous economic problems even if Social Security and Medicare were eliminated altogether.

It would have been useful if this piece had pointed out the problem that health care spending poses for the country and the need to fix the health care system rather than make false or misleading statements about how the aging of the baby boomers is driving the country to ruin.

(At one point the piece makes the outrageous assertion that: "On this one issue, liberals and conservatives agree: It's an unsustainable path, it must be altered, and Democrats and Republicans must do it together." This is completely untrue. many liberals recognize that if health care costs are brought in line with those of other wealthy countries with longer life expectancies than the United States, the budget problems facing the country are quite manageable.)

--Dean Baker

Listeners might think that it is after listening to a segment this morning that discussed increased public opposition to trade in the context of the Republican presidential debate in Detroit tonight. They could have saved air time and increased accuracy by dropping the word "free." After all recent trade agreements have done little or nothing to remove barriers to trade in highly paid professional services, like physicians' and lawyers' services (or reporters' services), so they are really only about reducing some trade barriers. The upward redistribution discussed in the segment is not an accident, it is the expected outcome of such trade deals.

These trade deals have also increased some protectionist barriers, most notably by applying U.S. style patent and copyright protection in the developing world. Therefore calling these deals "free trade" is especially inappropriate.

The segment also wrongly asserted that the payroll tax is flat. This is not true. It is regressive, since the Social Security tax is capped. It does not apply to wage income above roughly $96,000. It also does not apply at all to capital income that disproportionately goes to higher income taxpayers.

--Dean Baker

If a Democratic presidential candidate had no idea how much the U.S. spent on defense (suppose they said $3.5 trillion a year) or the size of our armed forces (suppose they said 9 million) would that just pass without comment in a major newspaper? Somehow, I don't think so. Any competent reporter would be immediately grilling the candidate or their staff to find out how out of touch with reality the person really is.

Why then is Fred Thompson quoted in the WSJ as saying that the Medicare prescription drug benefit added $72 trillion to country's obligations, without any explanation to readers that Mr. Thompson is off by a factor of seven. The projections of the cost of the Medicare Part D over an infinite horizon are less than $10 trillion.

(Before anyone gets too concerned about even this seemingly large number [approximate 1.0 percent of future income], remember that it is driven by the assumption that the government will forever continue to grant patent monopolies that allow the drug companies to charge ever higher prices, instead of adopting a modern system for financing drug research. If we fix the system, all drugs can be sold at $4 per prescription.)

--Dean Baker

Just to make sure that readers did not worry that the Post was becoming too open-minded (see the note on Europe below), the Post ran a column on efforts to promote savings in the U.S. that completely ignored the stock and and housing bubbles. This is close to mind-boggling since the wealth effect on consumption is one of the most widely accepted theories in economics.

The conventional estimates show that a dollar of housing bubble wealth translates into 4 to 6 cents of additional consumption each year. The effect with stock wealth is estimated at 3 to 4 cents on the dollar. With $8 trillion in housing bubble wealth created by the extraordinary run-up in house prices over the last dozen years, we should have expected to see a decine in annual savings in the range of $320 billion to $480 billion (3.2 to 4.8 percentage points of disposable income). Those who are concerned about a lack of savings by households probably should begin their list of policy prescriptions by telling the Fed to fight the growth of irrational bubbles. Every other item to promote savings that appears on the list in the Post piece is trivial in comparison.

--Dean Baker

The Post has written endless news and opinion pieces over the last 15 years projecting Europe's demise. It even questioned whether Europe had the ability to complete the adoption of the euro as a physical currency (largely flawless by most accounts).

Therefore, it is a newsworthy event that it allowed a piece in the Sunday Outlook section that reported on Europe's strengths. This is a bit like Pravda in the Soviet days printing a column on the merits of capitalism. The Post should be applauded for finally overcoming its ideological aversion to the European welfare state and allowing some difference of opinion on this issue.

--Dean Baker

That is probably the question that most readers are asking after reading the headline of the article on the September jobs data, "Strong Jobs Report Eases Fears Over Economy's Health." As I and others have said, the September numbers were somewhat stronger that expected, and the upward revisions to July and August job numbers were good news, but 110,000 jobs as "strong?" Give me a break.

The economy created an average of 240,000 jobs a month during President Clinton's second term. That qualifies as "strong" job growth, not 110,000.

The article also allowed the Bush administration to do some unaswered boasting. Quoting the White House that the upward revision to the August data (from a loss to a gain) coupled with September's jobs numbers "means that we've had 49 consecutive months of job creation. And that's the longest uninterrupted job growth on record for our country."

While the statement is true, it is not terribly meaningful. Prior stretches of job creation were interrupted by short strikes. Since the White House is interested in records, the Post could have pointed out that the 0.64 percent annual rate of job growth since President Bush took office is also the slowest rate of job growth on record for any comparable period of time.

I've said many times that President Bush is not completely responsible for the weakness of the economy since he took office. However, when the tries to imply that the economy has been strong, he is not being honest.

--Dean Baker

Some articles in the NYT are literally painful to read. In a discussion over the debate on the extension of the State Children's Health Insurance Program, the NYT told readers that:

"The substantial margin of passage in both houses obscured visceral disagreements over philosophy and ideology. Those differences could create formidable obstacles for a president of either party [to extend health insurance coverage], in the absence of a landslide like those that preceded creation of Social Security in 1935 and Medicare in 1965."

Why would anyone think that a debate between members of Congress has anything to do with ideology? How many members of Congress carry around copies of Locke and Rawls as they go to debate on the floor of the Congress?

Let's get serious. These are politicians, not political philosophers. They respond to money and interest groups. Is it an accident that the members of Congress who vote against extending Medicare coverage to apply to the whole country happen to get large contributions from insurance and pharmaceutical companies?
The NYT wants readers to think it is, telling them these people are motivated by "philosophy and ideology."
Of course the politicians are going to rail against "government healthcare" and "socialized medicine." Is a member of Congress going to stand up and say that they oppose this bill because the insurance industry gives them hundreds of thousands of dollars? (Those supporting measures to extend health care coverage are also politicians responding to interest groups.)

To the NYT's credit, this piece is labeled as "news analysis" rather than being presented as just straight news. But it is pretty damn silly analysis, and the NYT has made similiar assertions about politicians motives in news articles.

--Dean Baker

The September employment report came in somewhat stronger than most people (including me) had expected, showing a gain of 110,000 jobs. In addition, August's numbers were revised upward to show a gain of 89,000, instead of a loss of 4,000. Most reporting has rightly focused on the good news.

However, it is worth noting another item in the report. The September report included preliminary benchmark revisions to the establishment survey based on state unemployment insurance records. These records, which provide a virtual census of payroll employment, show that the establishment survey overestimated job growth by 297,000 in the 12 months from March of 2006 to March of 2007, an average overestimate of approximately 25,000 per month.

The obvious culprit in this overestimate is the imputation for job growth in nearly created firms that could not be included in the survey. It would seem that the Bureau of Labor Statistics (BLS) overestimated job growth in new firms last year.

This fact is relevant to the September jobs data because BLS has actually imputed slightly more jobs into the establishment survey in the last three months than it did over the same period last year. If the imputation led to an average overestimate of job growth of 25,000 last year, it is reasonable to believe that the overestimate may be at least as large this year, since the economy seems weaker by most measures.

Reported job growth has averaged 97,000 over the last three months, so if BLS is overstating job growth by 25,000 a month due to a faulty imputation for jobs in new firms, the error would account for a substantial portion of reported job growth. We'll know the answer to this one in September of 2008 when next year's benchmark revisions are first released, but it is worth keeping an eye on this issue.

--Dean Baker

Okay folks, everyone knows how important $10 billion over the next five years is to the government, right? The Post assumes that you do, because it provides no context to this projection of savings on Medicare payments from including a means-test for individuals with incomes over $80,000 and couples with incomes over $160,000.

For those interested in assigning meaning to numbers, $10 billion over the next five years is equal to approximately 0.06 percent of projected spending, or $7 per person per year. It is approximately equal to 0.4 percent of projected spending on Medicare over this period. This last point is especially important. Means-testing will have little impact on Medicare spending unless the test is applied to people far lower down on the income distribution than is currently being proposed.

--Dean Baker

That is not how the NYT reported the results of an international poll conducted by the Pew Global Attitudes Project, but it could have been.

The survey asked people in 46 countries about their attitude toward a "free market economy." It is not clear that people in these countries have a common conception of the meaning of a "free market economy." Government imposed monopolies like patents and copyrights arguably have no place in a free market economy. These monopolies have a large and growing impact on the economy, affecting the distribution of trillions of dollars of goods and services worldwide. They have also been the topic of heated dispute in recent trade agreements.

Since it is not clear how people in different countries conceive of a free market, it is not clear what the results of the Pew poll mean. For this reason, it is questionable whether its findings deserved a full article in the NYT.

--Dean Baker

Should we blame Rupert Murdoch for the fact that the term "free trade" appears seven times in a front page article in places where "trade" would have been more accurate? The point of course is that the trade agreements pursued by recent administrations, while named "free trade" agreements for public relations purposes, actually do not promote free trade. They often do little or nothing to reduce the barriers that protect highly paid professionals (e.g. doctors, lawyers, investment bankers) and actually increase some trade barriers, such as copyrights and patents. Reporters can both save ink and paper and increase accuracy by dropping the term "free."

--Dean Baker

Those listening to the news summary on Morning Edition today were probably surprised to hear that people sued by the recording industry over alleged copyright violations "steal" music. I thought the trial was supposed to determine whether or not they had violated the law. Since NPR was apparently able to make this determination independently of the outcome of the trial, maybe we can all save time and money by skipping the trials and just asking the folks at NPR who has broken the law in copyright disputes.

--Dean Baker

Given the fact that economists always get up in arms (shrill?) when someone proposes a tariff or quota that might have the effect of protecting the jobs and wages of blue collar workers, yet they never can be found when a barrier is proposed to aid highly educated professionals or the pharmaceutical or entertainment industry, one might suspect a class bias.

The Washington Post has an article on the entertainment industry's efforts to increase penalty's for copyright violations. The article wrongly claims that these violations cost the economy money. This is untrue on its face. The losses to the industry are gains to consumers, and those who know economics would know immediately that the gains to consumers vastly exceed the losses to the industry. Some economic analysis would be useful in this article.

--Dean Baker

The NYT has an article on a new study by the Government Accountability Office that reports that senior government bureaucrats waste $146 million annually flying first class instead of coach. It's appropriate to crack down on this abuse (the law requires that they fly coach), but it is wrong to give readers the impression that this is a big item in the budget. This sum comes to approximately 0.005 percent of total spending or 49 cents per person per year. If the intent of the article is to inform readers, then this information should have been included since almost no NYT readers have any idea of how important $146 million is in the federal budget.

--Dean Baker

The 6.5 percent drop in August pending home sales is big news. The drop in the index, which measures the number of contracts signed, follows a 10.7 percent drop reported for July. This is a truly extraordinary two-month decline of 16.5 percent. This is a new index (it began in 2000), so it is easily the sharpest fall on record, but it would likely have been the sharpest two month decline in contracts at any point in the post-war era. The actual falloff in sales is likely to be even larger, since a high percentage of these contracts will not close because buyers cannot arrange financing.

While it's possible that sales may stabilize and even rise back somewhat now that the mortgage markets are in somewhat better shape, they are now down more than 20 percent from year ago levels in this index and by more than 30 percent from the year-round average in 2005. The idea that the economy will somehow brush off a decline of this magnitude and keep moving along at a healthy pace seems almost bizarre. With consumption growth weak, equipment investment flat, and non-residential investment peaking, there is little other trade driven by a falling dollar (and thereby higher import prices) to sustain growth.

--Dean Baker

The NYT is upset again that the dollar is falling and once again it is blaming President Bush's budget deficits. This turns economics on its head. The story on budget deficits is that they lead to higher interest rates in the United States. This causes the dollar to be worth more than would otherwise be the case. In other words, the NYT's complaints just don't make any sense. They can say lots of bad things about Bush's tax cuts and his war-related spending, but it just doesn't make any sense to blame them for the decline of the dollar.

The dollar is declining for a simple reason -- it was over-valued. The United States had a trade deficit that exceeded 6 percent of GDP at its peak. This was not sustainable, as just about all economists recognized. There are two ways to reduce a trade deficit: a recession or a fall in the dollar. Unless the NYT prefers a prolonged recession, it should applaud the fall in the dollar as part of a necessary adjustment process.

The reality is that the high dollar policy initiated by Robert Rubin in the Clinton presidency was a short-term policy that temporarily allowed for higher U.S. living standards by making cheap imports available. (It also had important distributional effects, depressing the wages of less-educated manufacturing workers who are subject to international competition, while raising the real wages of highly educated professionals, who are largely protected from competition.) However, the trade deficit that resulted from the high dollar was unsustainable over the long-term, just as a large budget deficit is unsustainable. The Clinton-Rubin high dollar policy is to blame for the current decline in the dollar, not President Bush's tax cuts.

[Addendum: I just remembered one of the policy levers which would almost certainly help bring down the value of the dollar and eliminate a costly barrier for consumers. The government could allow banks and other financial institutions to offer saving accounts denominated in other currencies. As it is, it is very inconvenient for a typical middle income person with a modest sum to invest (e.g. $10,000 to $40,000) to hold foreign currencies. If the government didn't prohibit the practice, small savers could just go to their local bank and have a saving account denominated in yen, euros, pounds or other major currencies. If a saver had put their money in euros back in 2002, they would be more than 50 percent richer today.

If the "free traders" actually were concerned about free trade, they would have focused on eliminating this wasteful restriction on currency trading long ago, instead of focusing on much less consequential barriers to merchandise trade.]

--Dean Baker

That's not exactly what the headline of the Post editorial said, but it's pretty close. The editorial, which had the subhead "the candidate has no plan to fix Social Security," denounced Senator Clinton for not having a plan for dealing with Social Security's projected shortfall.

Those familar with the Social Security projections recognize that this is an irrational obsession of the Post which permeates both its opinion pages and its news reporting. The Congressional Budget Office's projections show that the program can pay all benefits, with no changes whatsoever, through the year 2046, nearly thirty years after the latest date that Senator Clinton could leave the presidency. The projected shortfall over the whole 75-year planning period is 0.4 percent of GDP, approximately 30 percent of the current cost of the war in Iraq (which has been supported from the beginning by the Post).

Even this limited shortfall can be substantially reduced by good policies in other areas. If the health care system is fixed so that the share of compensation going to untaxed employer-provided health insurance does not continually rise, it would reduce the projected shortfall by 10 percent. If we adopted trade policies designed to promote equality instead of inequality (freeing trade in highly paid professional services), it could reduce the shortfall by close to 50 percent by bringing a larger share of wage income under the cap for the Social Security tax.

When it comes to Social Security, Senator Clinton would be well-advised to focus on real numbers and real issues, and not the whining of the folks at the Washington Post editorial board, who obviously have a deep-seated hostility to the program. This is both good policy and good politics.

--Dean Baker