Lobbyists and Banks

From Michael Perelman:

Lobbyists and Crises

“The International Monetary Fund recently found that banks that spent more to influence policy over the last decade were more likely to take more securitization risks, have larger loan defaults and experience sharper stock falls during crucial points of the crisis.”

Cyran, Robert and James Pethokoukis. 2010. “Formidable Lobbyists.” New York Times (3 March): p. B 2.

I’m assuming you’re referring to the IMF Working Paper 09287 “A Fistful of Dollars: Lobbying and the Financial Crisis”


Macroeconomic Productivity Measures Don’t Really Measure Productivity

Macroeconomic productivity measures don’t really measure productivity.  These measures, which purport to measure how much output is created per worker in the U.S. are actually pretty faulty.  Unfortunately this leads to poor polices and a mis-reading of what’s really happening.  From the the NYTimes:

FOR a quarter-century, American economic policy has assumed that the keys to durable national prosperity are deregulation, free trade and a swift transition to a post-industrial, services-dominated future.

Such policies, advocates say, drive innovation, which leads to enormous labor productivity and wage gains — more than enough, supposedly, to make up for the labor disruptions that accompany free trade and de-industrialization.

In reality, though, wage gains for the average worker have lagged behind productivity since the early 1980s, a situation that free-traders usually attribute to workers failing to retrain themselves after seeing their jobs outsourced.

But what if wages lag because productivity itself is being grossly overstated, especially in the nation’s manufacturing sector? Then, suddenly, a cornerstone of American economic policy would begin to crumble.

Productivity measures how many worker hours are needed for a given unit of output during a given time period; when hours fall relative to output, labor productivity increases. In 2009, the data show, Americans needed 40 percent fewer hours to produce the same unit of output as in 1980.

But there’s a problem: labor productivity figures, which are calculated by the Labor Department, count only worker hours in America, even though American-owned factories and labs have been steadily transplanted overseas, and foreign workers have contributed significantly to the final products counted in productivity measures.

The result is an apparent drop in the number of worker hours required to produce goods — and thus increased productivity. But actually, the total number of worker hours does not necessarily change.

Social Security Is NOT In Trouble and Does NOT Need to be Cut

One of the real reasons why there’s a growing deficit hysteria is because opponents of Social Security want to cut the program.  But Social Security is immensely popular and any attempt to cut Social Security would fail politically unless somehow the public can be convinced that it’s “absolutely necessary” to save the nation.  Hence, the opponents must whip up a fear of any government spending by playing on misplaced fears of deficits (the public at large does not understand that government deficits are not like personal, private deficits – but more on that later).  So we get propaganda and slogans intended to instill fear of government deficits first, then to misdirect the public into cutting the benefits (or entire program) of one of the most successful and soundly funded programs (Social Security) instead of the poorly financed and unproductive government programs.

Social Security does NOT borrow money and “saddle our grandchildren with debt”.  Social Security is pay-as-you-go.  Today’s SS payroll taxes pay for today’s benefits (actually a bit more).  It will continue to do so, even with demographic changes (baby boomers retiring) through the next 30+ years. Opponents of Social Security claim there is a massive “unfunded liability”, but in reality there isn’t.  Future Social Security benefits are only “unfunded” if one refuses to recognize that the payroll tax actually “funds” the benefits.  For future Social Security benefits to be “unfunded liabilities”, one must assume that the entire U.S. economy is going to disappear and payroll taxes with it.  Believe me, if that happens, we have other more pressing problems.

Here’s the Kathy Ruffing of Center on Budget and Priorities on the topic.  More of her analysis at the link:

The Reality

In fact, Social Security is not “running in the red” and will not need a “bailout” soon:

  • In 2009, the combined Old-Age, Survivors, and Disability Insurance Trust Funds — commonly known as Social Security — ran a surplus of $137 billion, meaning that the trust funds’ income (from taxes and interest) exceeded their spending (for benefits and administration) by that amount.
  • The Congressional Budget Office (CBO) expects the surplus to slip to $92 billion in 2010 before rising again — reaching $139 billion in 2015. (See Figure 1.)
  • The Office of Management and Budget (OMB) echoes CBO’s projections for the next two years and expects a more robust recovery in the system’s finances thereafter.
  • So why do some people want to cut or limit a program that has been so popular and so successful? Why do some folks want to cut payments to Grandma, the disabled,  and orphans?  There’s three real reasons.

    First, some people have always ideologically opposed Social Security and any government efforts to provide any type of economic benefits or insurance to citizens.  Republicans opposed the SS program when it was proposed in the 1930’s.  Ronald Reagan wanted to eliminate SS, but failed.  George Bush Jr tried to “privatized” the program and turn it over to Wall Street but failed.  Libertarians, many Republicans, and many of the so-called Tea Party crowd are just opposed to any such government programs on ideological grounds.

    Second, Wall Street and the big banks see Social Security as a competitor and missed profits.  Instead of having current payroll taxes collected by government, efficiently administered with a very low administrative cost burden (as SS does now), and then benefits provided to nearly all Americans, Wall Street thinks Americans should be forced by law to save for retirement in accounts that Wall Street manages, charges high fees, collects big profits, and let’s the workers absorb all the risk.  Of course, the Wall Street lobby is huge in Washington.

    Finally, politicians in Washington don’t want Americans to realize the truth about government funding.  The reality is that payroll taxes for Social Security have been unnecessarily high for the past 18 or so years.  SS taxes have been much higher than what was necessary to properly fund the program.  These excess SS taxes have been placed into a “trust fund” that is invested in US government bonds.  Of course that means that the extra payroll taxes were really collected for Social Security but were actually spent on other government programs.  One of the biggest of the other government “programs” was the large top-bracket and capital gains income tax cuts of Bush, Jr.  In other words, the Feds have collected too much in payroll taxes from workers in order to fund the tax cuts given to high-income investors and high-income workers.  Demographic changes that will hit later this decade (increased baby boomer retirement) do mean that Social Security will only be collecting enough taxes to fund itself soon, and not be collecting extra taxes to fund the other tax cuts and military spending.  This prospect has politicians in a tizzy.  So they try to whip a deficit hysteria based on the average person’s ignorance of the economics of government budgets and then hope to attack Social Security benefits.  We can, and should, do better.

    Anybody who really wants to learn the details and truth of Social Security funding, benefits, projections, history, etc. is well advised to visit and explore Bruce Webb’s Social Security series.