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Social Security Fact Check

From Dean Baker at the Center for Economic and Policy Research …

The Congressional Budget Office projects that the program can pay all scheduled benefits through the year 2044 with no changes whatsoever. Even after this date it could still pay more than 75 percent of projected benefits long into the future (a level far higher than current benefits) even if no changes were ever made.
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In fact, these projections show that Social Security is on a sounder financial footing today than it has been through most of its history since it can go 34 years with no changes being made at all. This was not true at any point in the first 40 years of the program’s existence.

Editor’s Note

Policy Points will be updated on a reduced schedule during the week of March 22, 2010. Please check periodically for updates.

The U.S. Isn’t Greece

Dean Baker of the Center for Economic and Policy Research explains the problems in comparing the United State’s economy to that of Greece.

If we get serious, we see that the US and Greece have almost nothing in common. Greece has a small economy that is still largely dependent on tourism and agriculture. It also has a horribly corrupt government. The Organization for Economic Co-Operation and Development estimates that more than 30 percent of its GDP consists of gray market activity that escapes taxation. Even if this figure is exaggerated, the size of the underground economy is certainly much larger in Greece than in the United States.
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Greece also has the huge disadvantage of being tied to the euro. This matters for its crisis because currency devaluation, the most obvious mechanism for restoring international competitiveness, is not open to Greece.
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By contrast, in spite of the loss of more than one-third of its manufacturing jobs since 1998, the United States remains a manufacturing powerhouse. It’s manufacturing sector produced $1.4 trillion in 2007, the last year before the crisis. The United States also has a vibrant high-tech sector and has huge agricultural and tourist sectors.

Misplaced China Fears

In The New York Times, Paul Krugman explains why fear of China’s “dumping” of dollar holdings doesn’t actually threaten the United States’ well-being.

What you have to ask is, What would happen if China tried to sell a large share of its U.S. assets? Would interest rates soar? Short-term U.S. interest rates wouldn’t change: they’re being kept near zero by the Fed, which won’t raise rates until the unemployment rate comes down. Long-term rates might rise slightly, but they’re mainly determined by market expectations of future short-term rates. Also, the Fed could offset any interest-rate impact of a Chinese pullback by expanding its own purchases of long-term bonds.
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It’s true that if China dumped its U.S. assets the value of the dollar would fall against other major currencies, such as the euro. But that would be a good thing for the United States, since it would make our goods more competitive and reduce our trade deficit. On the other hand, it would be a bad thing for China, which would suffer large losses on its dollar holdings. In short, right now America has China over a barrel, not the other way around.

January Job Openings

The latest version of the  Job Openings and Labor Turnover Surveyconducted by the U.S. Bureau of Labor Statistics found that job openings remained scarce in January, the most recent month for which data are available. As the Economic Policy Institute noted in its analysis of the data:

This morning, the Bureau of Labor Statistics released the January report from the Job Openings and Labor Turnover Survey (JOLTS), showing that job openings increased by 193,000 to 2.7 million in January (including an upward revision of 34,000 to earlier data).  From the Current Population Survey, we know that the number of unemployed workers decreased in January by 430,000 to 14.8 million.  This means there was substantial improvement in the ratio of job seekers per job opening, which dropped from 6.0 in December to 5.4 in January.  As the figure shows, there is a good deal of month-to-month volatility in this ratio, but nevertheless January marked the largest one-month improvement in the history of the series.  At 5.4, the number of unemployed workers per job opening is the lowest it has been since March of last year.   However, it remains almost twice as high as the worst month of the recession of the early 2000s, when it peaked at 2.8.