Thursday, July 28, 2011

The decline of Business Week's quality

Now I know it wasn't just my imagination that Business Week's quality of financial reporting went down went it became Bloomberg Business Week. It's new cover story, Peter Coy, Why the Debt Crisis Is Even Worse Than You Think 07/27/2011, they run a piece on why Social Security and Medicare will destroy the economy that is worth of FOX News. Coy writes:

A more revealing calculation is the CBO's measurement of what's called the fiscal gap. That figure is conceptually cleaner than the national debt — and consequently more alarming. Boston University’s Kotlikoff has extended the agency’s analysis from 2085 out to the infinite horizon, which he says is the only method that's invulnerable to the frame-of-reference problem. It's an approach used by actuaries to make sure that a pension system doesn't contain an instability that will manifest itself just past the last year studied. Years far in the future carry very little weight, converging toward zero, because they are discounted by the time value of money. Even so, Kotlikoff concluded that the fiscal gap—i.e., the net present value of all future expenses minus all future revenue—amounts to $211 trillion.
After the qualification that this calculation is actually used "to make sure that a pension system doesn't contain an instability that will manifest itself just past the last year studied," he uses it as an argument for why Grandma should live on catfood. He laments:

Senior citizens are being told by their own lobbyists, repeatedly, that any attempt to rein in the cost of Social Security and Medicare is an unjust attack on earned benefits. "Stop the liberals from raiding the Social Security Trust Fund once and for all!" says a recent mailing from the National Retirement Security Task Force. Similar messages aimed at Democratic voters make the same charge against Republicans. No wonder Obama and Boehner were rebuffed by their own parties for putting entitlements on the table. In the end neither the House nor the Senate debt-ceiling proposals touched Social Security or Medicare. [my emphasis]
Given the bizarre state of the debt-ceiling negotiations, who knows what action he's referring to in that last sentence?

But that bolded part should serve as a reminder that the Republicans will cynically exploit President Obama's proposals to cut Medicare and Social Security.

Using a trend projected out to infinity is just goofy to use for a purpose like that. Somewhere in that time-frame, the sun will go supernova and remove all physical traces of any Social Security or Medicare beneficiaries. So shouldn't we conclude it doesn't matter?

As Paul Krugman repeats every few days lately, not only the federal budget but the US economy as a whole faces longterm problems from rising health costs. But other advanced economies already control those more effectively than the US does today, while providing more comprehensive care. Eliminating Medicare could impose some longterm cost controls by denying care to older people so that they would die younger and not consume as much health care. Not a solution I favor.

Far into the article, Coy does let slip an explanation that raising taxes is less likely to slow aggregate demand than spending cuts, thus stepping on a sacred Republican talking point:

.. experience shows that in a period of slack demand like the present, tax hikes are no more job-killing than spending cuts, and probably less so. Cutting spending — say, by firing federal employees or canceling procurement — removes demand from the economy dollar-for-dollar. A dollar tax hike, on the other hand, especially one aimed at upper incomes, cuts demand by less than a dollar. Those who pay the tax cover part of it from their savings and only part by reducing their spending. If lawmakers insist on using the phrase "job-killing," Roberton Williams, a senior fellow at the Brookings Institution-Urban Institute Tax Policy Center, wrote in a recent blog post, "they should apply it equally to both tax increases and spending cuts." [my emphasis]
It's still kind of a sloppy paragraph. Why would you suggest that that "job-killing" should be applied equally to spending cuts and tax increases after just explaining that tax increases have a less drastic negative effect on jobs?

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