Το κυνήγι μαγισσών δεν είναι μόνο ελληνικό φαινόμενο!!!

The War on Public Sector Workers

By Dean Baker

Politicians across the country are using heaping doses of the politics of envy to try to arouse the anger of workers. However, their targets are not the corporate CEOs pulling down tens of millions of dollars a year in pay and bonuses. Nor is it the Wall Street crew that got incredibly rich inflating the housing bubble and then took government handouts to stay alive through the bust. The targets of these politicians’ wrath are school teachers, firefighters and other public sector workers.

They are outraged that many of these workers still earn enough to support a middle-class family. Even more outrageous, many of these workers have traditionally defined benefit pensions that assure them of a modicum of comfort in retirement. Having managed to ensure that most workers in the private sector did not benefit much from economic growth over the last three decades, the same upward redistributionist crew is turning their guns on public sector workers.

There are two major deceptions in their story. First, after working to eliminate traditional pensions in the private sector, they now tell us that getting a pension in the form of a guaranteed benefit is hugely more valuable than having the same money placed in a 401(k) type defined contribution account. Second, after shoving stock down everyone’s throat in the bubble years, they now tell us we cannot expect a very good return from investing pension funds in the market.

Starting with the pension story, it is really touching to hear conservatives singing the virtues of defined benefit pensions. They argue that if a state or local government puts $1,000 a year in a defined benefit pension and guarantees the market return for its workers, this is hugely more valuable than if it takes the same $1,000 a year and puts it into a 401(k) type account.

Since most public sector workers still have defined benefit pensions, this is a central part of their story about public sector workers being overpaid. By their calculations, the $1,000 that a government puts into a defined benefit pension today should be counted as being worth close to $2,000 since the government guarantees the return. Doing the math this way goes a long way toward showing that public sector workers are overpaid.

There are a few points that jump out here. First, it is amazing to hear many of the same people who touted the replacement of defined benefit pensions with 401(k) accounts now tell us about the great value of a guaranteed pension. When we do the math their way, it means that ordinary workers have even less to show from economic growth over the last three decades, since so many workers have lost pensions in this period.

The complaints of these conservative economists also make great reading when put side by side with their plans to privatize Social Security and get rid of its guaranteed benefit. When we were talking about cutting back protections for hundreds of millions of workers and their families we were not supposed to take into account the value of a guaranteed benefit. Now that we are talking about cutting the pay of public sector workers, it is essential to include the value of the guarantee in the calculation. Is it any wonder that so many people have contempt for economists?

Finally, it is important to keep our eye on the ball here. The extra value comes from the guarantee. There is no gain to the government if it replaces pensions with 401(k) accounts as many have advocated and some governments have done. The argument is not that the state is paying too much; the argument is that the worker is getting too much because of the value of the guarantee. If we eliminate a guaranteed benefit we have just taken away the workers’ retirement security, we have not saved the taxpayers a penny.

The other part of the story is the claim that the returns being assumed by public pensions on their investments are overly optimistic. This one is really, really painful.

Some of us were making this argument at the top of our lungs back in the late 90s, when price to earnings ratios in the stock market were over 30. We continued to make this argument in the last decade when price to earnings ratios were still well into the 20s, far above historic averages. However we couldn’t get anyone to listen back then, because the complaint about exaggerated stock returns did not fit the agenda of the upward redistributionists.

Now that the upward redistributionists have put the attack on public pensions at the top of their agenda it is convenient to raise concerns about overly-optimistic returns. However now that the stock market has plunged (pensions have already taken their hits) their concerns are wrong. In fact, pension funds are being very reasonable in their return projections. Those familiar with arithmetic know that it would be almost impossible for them to earn a substantial lower rate of return, barring a complete collapse of the economy.

So, welcome to the latest episode in the long-running battle to redistribute ever more income to the rich. Having already achieved great success in depressing the pay of workers throughout the private sector, the call is to cut the pay and benefits of workers in the public sector. Won’t you join the cause?

--This article was originally published on April 16, 2012 byTruthout.

Ο πληθωρισμός ΠΡΕΠΕΙ να αυξηθεί!

Επιμένω στο θέμα του πληθωρισμού...ο συγκρατημένος πληθωρισμός μπορεί να δώσει μία ανάσα στις υπερχρεωμένες οικονομίες,επιχειρήσεις και νοικοκυριά....Άλλο ένα σχετικό άρθρο!

Faith-Based Economics at the European Central Bank

By Dean Baker

In the build-up to World War II, the French military created the Maginot Line. This barrier, which utilized state of the art military defenses, was intended to defend France from a ferocious assault by Hitler’s armies. When the attack ultimately came, the Germans made quick work of the Maginot Line by going around it through Belgium.

The European Central Bank’s (ECB) obsession with a 2 percent inflation target can be seen as similar to the construction of the Maginot Line. The ECB sees achieving this inflation target as the sum total of the central bank’s responsibilities for maintaining stable growth in Europe, just as the French generals viewed the construction of the Maginot line as defending France from a German invasion.

The main difference is that after that German conquest, the French generals recognized their mistake. By contrast, even after their 2.0 percent inflation obsession led to economic disaster, the people running the ECB are still in charge and still pursuing the same policy.

At this point it is difficult to imagine what set of events in the world could persuade the ECB to pursue a different course. As the crisis demonstrates, an improperly regulated financial and economic system can produce massive asset bubbles. The collapse of these bubbles can lead to prolonged periods of high unemployment and below potential output of the sort that the eurozone, the United States and the United Kingdom are now experiencing.

This means that responsible central banks that are concerned with stable growth cannot just focus on a 2.0 percent inflation target. They must be prepared to take the steps necessary to counter the growth of asset bubbles before they get large enough to endanger the economy. This was evident to many before the crisis; it should be evident to everyone now.

Central banks also have the responsibility to shore up the economy and help to move it back toward full employment. This policy can include the sort of quantitative easing designed to lower long-term interest rates that has been pursued by the Federal Reserve Board and the Bank of England and less aggressively by the ECB.

It should also include targeting higher inflation rates in the range of 3-4 percent, as has been advocated by Paul Krugman, Ben Bernanke in his Princeton professor days, and Oliver Blanchard, the chief economist at the IMF. Ken Rogoff, a former chief economist at the IMF, has suggested inflation target as high as 6 percent.

There are two reasons for targeting a higher rate of inflation. First, it will reduce real interest rates. If businesses expect that prices will be 15-18 percent higher three years from now it will give them more incentive to invest today, since they will be able to sell what they produce at these higher prices. Higher inflation will also reduce debt burdens. If prices and wages rise on average by 15 percent over the next three years, many underwater mortgages will be back above water as the house price can also be expected to rise by 15 percent. Similarly, if wages rise by 15 percent then a fixed monthly mortgage payment will pose a much smaller burden.

These are reasons that the ECB and other central banks should be pushing for a higher rate of inflation. But instead of looking in this direction, the ECB is doubling down on its 2.0 percent inflation commitment. The fact that unemployment is high and rising across the eurozone seems to have no impact whatsoever on this policy.

In fact, the ECB is actually making things worse with the austerity policies that it is imposing on the heavily indebted countries across the eurozone. Reductions in government spending and tax increases in the middle of a recession have the predictable effect of slowing growth further. The ECB’s persistent refusal to act as a lender of last resort also exacerbates the crisis by raising interest rates, and therefore debt burdens, for highly indebted countries.

It has been roughly two years since the ECB has adopted the austerity route. The results have been almost uniformly negative. Unemployment rates have consistently come in higher and growth lower than had been projected. Needless to say, this also has meant that country after country has missed the deficit targets that were supposedly the main point of the austerity plans.

If we had serious economists setting policy at the ECB, this pattern would be a basis for reconsidering the policy. However instead of a rethink, we get a doubling down with the ECB’s leadership continually reasserting their commitment to stay the course. (It even produced a short propaganda piece about the “inflation monster” for the doubters.) It seems that there is no set of events in the world that can lead the generals at the ECB to question the wisdom of the Maginot Line.

--This article was originally published on April 11, 2012 by the Guardian Unlimited.