Do large national debts harm economies?

By James D. Agresti
May 6, 2013

Advocates for higher government spending are abuzz over a new working paper that disputes a famous paper often trumpeted by conservatives. The famous paper found that high levels of national debt are associated with lower economic growth, a result that conservatives have repeatedly cited to argue that governments should stop accumulating debt.

This new working paper exposes calculation errors in the famous paper, critiques its methodology, and presents competing findings. Liberals have latched onto these findings to argue that nations should be less concerned with government debt and should increase government spending to “stimulate” their economies.

While the authors of the working paper make significant contributions to this debate, they and numerous commentators who are citing their work have used their findings to mislead rather than inform. They have done this by leveling false accusations, ignoring an important follow-up paper written by the same authors, and failing to reveal that the new findings are similar to that of the famous paper: high levels of national debt are associated with slower economic growth.

Primary Findings

For a 2010 paper published in the American Economic Review, Carmen M. Reinhart of the University of Maryland and Kenneth S. Rogoff of Harvard University researched and tabulated the national debt and economic growth in 20 advanced economies (such as the United States, France, and Japan). Using 2,000+ data points from over 200 years, the authors found that “high debt/GDP levels (90 percent and above) are associated with notably lower growth outcomes.” Relevantly, U.S. federal debt surpassed 90% of GDP in 2010 and has now reached 105% of GDP.

However, Reinhart and Rogoff’s paper has come under withering criticism in a working paper written by Thomas Herndon, Michael Ash, and Robert Pollin of the Political Economy Research Institute at the University of Massachusetts, Amherst. Herndon, Ash, and Pollin [HAP] assert that the Reinhart and Rogoff [RR] paper suffers from “coding errors, selective exclusion of available data, and unconventional weighting of summary statistics,” which “lead to serious errors that inaccurately represent the relationship between public debt and GDP growth….”

The existence of at least one coding error is a reality that RR admit is “a significant mistake in one of our figures….” Furthermore, this coding error appears to pervade the entire paper, a point that RR have yet to formally acknowledge. Beyond this, the other issues raised by HAP boil down to subjective interpretations of how data should be averaged and the use of data that was not verified until after RR’s paper was published.

Most importantly, even if one uncritically accepts all of HAP’s methods, their primary results are basically similar to RR’s: countries with debt/GDP ratios higher than 90% have notably lower economic growth. HAP’s results are graphed here:

Misrepresenting the Results

Despite the association between debt and economic growth found by HAP, reporters and commentators have been leading their audiences to believe no such relationship exists. For example, Ben White and Tarini Parti of Politico reported that RR’s paper underwent a “very public demolition” at the hands of HAP, who found that economic growth “in countries with debt over 90 percent of GDP was around 2.2 percent, not much different from lower debt countries.”

In fact, HAP found that advanced countries with national debts over 90% of GDP had 31% less economic growth than when their debts were 60-90% of GDP, 29% less growth than when their debts were 30-60% of GDP, and 48% less growth than when their debts were 0-30% of GDP. As explained further below, these are significant differences with important implications, and Politico is not alone in masking these realities.

The Washington Post‘s editorial board wrote that HAP’s paper “debunks” RR’s “famous 2010 finding that a national debt-to-gross domestic product ratio above 90 percent may substantially retard economic growth.” A headline in the American Prospect has declared that “Reinhart and Rogoff’s Theory of Government Debt is Dead,” and Mike Konczal of the Roosevelt Institute has claimed that “one of the core empirical points providing the intellectual foundation for the global move to austerity in the early 2010s was based on someone accidentally not updating a row formula in Excel.” Countless other individuals and organizations have made similar claims.

These misrepresentations are somewhat understandable given the manner in which HAP present their findings. Their abstract denies any association between debt and economic growth, claiming that “average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower.” What do they mean by “dramatically different?” One has to read ten pages into HAP’s paper before they provide a side-by-side comparison of the figures they arrived at for economic growth under different levels of debt: “The actual growth gap between the highest and next highest debt/GDP categories is 1.0 percentage point (i.e., 3.2 percent less 2.2 percent).”

To those unfamiliar with this issue, “1.0 percentage point” may not sound like much, but in this context, it amounts to 31% less economic growth per year. Compounded over time, this can cause genuine harm to people. For example, if economic growth in the U.S. were reduced by 1.0 percentage point per year over the past 20 years, GDP would have been $13.1 trillion in 2012 instead of the $15.7 trillion that it was. This portends far-reaching negative consequences, such as more poverty and reduced life expectancy. As explained in the textbook Microeconomics for Today:

GDP per capita provides a general index of a country’s standard of living. Countries with low GDP per capita and slow growth in GDP per capita are less able to satisfy basic needs for food, shelter, clothing, education, and health.

In a recent New York Times op-ed, Pollin and Ash (two thirds of HAP) write that a “coding error and partial exclusion of data” by RR altered one of their results for economic growth by 0.6 percentage points. They perceptively note that this difference “is quite substantial when we’re talking about national economic growth.” Yet, in their paper, HAP characterize a much larger 1.0 percentage point difference in national economic growth as “not dramatically different.”

Cause and Effect

One of the most important critiques of RR and those who have favorably cited their research concerns the issue of causality. In basic terms, HAP and company argue that slow economic growth causes high debt and not vice-versa. In the words of Mark Gongloff of the Huffington Post, RR “imply strongly that high debt causes slow growth, when there is no evidence for that.”

In truth, there is prominent evidence for this, but HAP and many others have ignored it. In 2012, the Journal of Economic Perspectives published a paper by RR and Reinhart’s husband, Vincent R. Reinhart, the chief U.S. economist at Morgan Stanley. In this paper, these scholars (hereafter referred to as RRR) specifically addressed the issue of cause and effect. Yet, from reading HAP’s paper and many news reports and commentaries about this issue, one would never even know that this paper existed.

RRR took a straightforward approach to the matter of cause and effect by limiting their analysis to “prolonged periods of exceptionally high public debt, defined as episodes where public debt to GDP exceeded 90 percent for at least five years.” They found that these countries averaged 1.2 percentage points or 34% less economic growth than when debt was below 90% of GDP. Note that this figure is very close to the 31% difference found by HAP. RRR explain the significance of this with regard to cause and effect:

Following Reinhart and Rogoff (2010), we select stretches where gross public debt exceeds 90 percent of nominal GDP on a sustained basis. Such public debt overhang episodes are associated with lower growth than during other periods. Even more striking, among the 26 episodes we identify, 20 lasted more than a decade. The long duration belies the view that the correlation is caused mainly by debt buildups during business cycle recessions.

RRR emphasize that the cause-and-effect issue has not been “definitively addressed,” but they assert that “the balance of the existing evidence” from their study and other recent studies “certainly suggests that public debt above a certain threshold leads to a rate of economic growth that is perhaps 1 percentage point slower per year.” This is precisely the figure arrived at by HAP.

This does not mean that cause and effect can’t run in both directions. No one disputes that economic recessions can increase government debt, and constructive debate over this matter will surely be ongoing. Nonetheless, there is a clear association between high debt and slow growth, and substantial evidence that the former can cause the latter.

A Universal Rule?

According to Thomas Herndon in an op-ed for Business Insider, he and his coauthors (HAP) “show that, contrary to R&R, there is no definitive threshold for the public debt/GDP ratio, beyond which countries will invariably suffer a major decline in GDP growth.” Likewise Mike Konczal of the Roosevelt Institute has claimed that “Reinhart-Rogoff was supposed to establish a universal rule that there was a speed limit where debt above 90 percent of GDP became dangerous. Now I think that’s out the door.”

Those statements border on defamatory. RR explicitly state in their original 2010 paper that “there is considerable variation across the countries, with some countries such as Australia and New Zealand experiencing no growth deterioration at very high debt levels.” Furthermore, Table 1 of HAP’s paper details the average economic growth rates under differing debt levels for each of the 20 advanced economies they study, and the values range from -1.8% to 4.6%. On top of this, in a 2011 Bloomberg op-ed, RR wrote:

We aren’t suggesting there is a bright red line at 90 percent; our results don’t imply that 89 percent is a safe debt level, or that 91 percent is necessarily catastrophic. Anyone familiar with doing empirical research understands that vulnerability to crises and anemic growth seldom depends on a single factor such as public debt.

Yet, in their New York Times op-ed, Pollin and Ash claim that RR in their 2012 paper “partly backed away from” the claim that “countries will consistently experience a sharp decline in economic growth once public debt levels exceed 90 percent of G.D.P.” How can RR possibly back away from a claim that they repudiated from the start? Moreover, anyone even vaguely familiar with economics knows that numerous factors affect economies, and thus, no single factor can possibly produce a consistent outcome for all economies. To claim that RR said or implied otherwise is a patent falsehood.

How Robust are the Results?

Other elements of the debate between RR and HAP concern the use of different mathematical methods, the inclusion/exclusion of certain data, and the significance of RR’s coding errors. RR and HAP have been battling over these issues in various venues, and links to their respective commentaries can be found here and here.

The views of other economists about the competing mathematical approaches of the scholars vary greatly. Nobel Prize-winning Princeton professor Paul Krugman has referred to RR’s statistical methods as “very odd” and “dubious.” Conversely, University of California professor James D. Hamilton, who is the author of a prominent graduate textbook about the types of mathematical issues involved here, has written that HAP’s method of handling such data is “less widely chosen” and “in my opinion less to be recommended.” Hamilton also stated that yet another approach is preferable, and it would produce results that fall in between RR’s and HAP’s.

Nonetheless, regardless of which mathematical techniques are used, once the coding errors are corrected and all available data are included, the results up to this point have been basically the same: high debt and slow economic growth go hand in hand. The exact figures that inform the strength of this relationship differ in material ways, and this needs to be sorted out in a comprehensive and methodical manner. The graph below, which compares RR’s and HAP’s results for advanced economies since World War II, is a modest start toward this end. Given that there is no objective “best way” to compute this data, all these results collectively serve to enlighten the issue.

In addition to the above, RR’s 2010 paper also contains average and median results for the period from 1790-2009 and for emerging economies (such as India, Brazil, and Nigeria). HAP’s paper only contains average results for advanced economies from 1946-2009, but Just Facts requested additional results from them, some of which they published in a New York Times op-ed and appendix. These results are incorporated above. Just Facts also requested corrected results from RR for all other results affected by their coding error, but a response is not yet forthcoming.

In their paper and subsequent commentaries, HAP present results for progressively shorter time periods to as little as a decade. In the New York Times, they assert that the “pattern for the most recent decade” is “especially significant” because it is “more informative and useful for assessing present-day policy concerns than data from the post-World War II era or, say, the Industrial Revolution.” For this period (2000-2009), they find “no evidence in these most recent years for any drop-off at all in economic growth when public debt exceeds 90 percent of G.D.P.”

Whether intended or not, restricting the observation period to 2000-2009 has the effect of reducing the sample to a relatively small dataset that happens to cut off near the end of one of the worst global recessions in modern history. This is precisely the type of scenario that would produce anomalous results. In contrast, the extensive dataset compiled by RR (2,000+ observations) has the advantage of being little affected by anomalies. This is necessary for robust results, although it is not an inherent guarantee of such.

Austerity?

In the closing statement of their paper, HAP assert that “RR’s findings have served as an intellectual bulwark in support of austerity politics,” and the “fact that their findings are wrong should therefore lead us to reassess the austerity agenda itself in both Europe and the United States.” Likewise, writing about HAP’s findings, Paul Krugman asserts that the “main reason our economic recovery has been so weak is that, spooked by fear-mongering over debt, we’ve been doing exactly what basic macroeconomics says you shouldn’t do — cutting government spending in the face of a depressed economy.”

Such claims are belied by actual data on government spending from the U.S. Bureau of Economic Analysis (BEA). The Great Recession lasted from December 2007 through June 2009, and from 2007 to 2009, the portion of the U.S. economy consumed by local, state, and federal governments increased by 17%. This higher level of spending was supposed to be a temporary response to the recession that would speed recovery, but in 2012, government was still consuming 9% more of the U.S. economy than in 2007, and the economy was still sputtering.

From a long-term perspective, since 2008, total government spending has consumed more of the nation’s economy than at any time since 1960, which is as far back as this BEA data goes. BEA also tracks a slightly less inclusive measure of government spending (called current expenditures) that dates back to 1929. By this measure, government spending consumed more of the nation’s economy during 2009-2011 than ever recorded in the history of the nation, including the peak of World War II. In 2012, current spending was just a hair below the peak of World War II.

Over the past several years, prominent journalists, commentators, and public policy organizations have misled their audiences into believing that government spending had fallen while it had actually risen. They have done this by making palpably false assertions, redefining government spending to exclude large portions of it, and cherry-picking misrepresentative baselines from which to make calculations.

Many of these same individuals have also blamed a host of ills on reduced government spending. As RR revealed in a recent New York Times op-ed responding to HAP’s criticisms, they have been receiving threatening emails blaming them “for layoffs of public employees, cutbacks in government services and tax increases.” This is despite the reality that the unemployment rate for government workers is 3.3%, as compared to 7.5% for the entire population.

Likewise, an October 2012 poll commissioned by Just Facts found that 23% of all voters (including 43% of Obama voters and 6% of Romney voters) did not know that government spending was consuming a larger portion of the economy than it was ten years ago, notwithstanding the fact that it was consuming 12% more.

On top of all this, politicians and reporters are now advancing the narrative that the national debt is going to be stable for the next ten years, when in fact, this claim is based upon an unrealistic scenario that requires major departures from current policy. All of this serves to mislead people into believing that the national debt does not pose a significant problem, even though the Congressional Budget Office recently reported that the U.S. government is on a path of “high and rising debt” that will have “serious negative consequences.”

Summary

Condensing the key points above, there is a clear relationship between high levels of debt and slow economic growth. This is a not a universal rule but a robust association based upon extensive observations and disparate mathematical methods. The precise strength of this relationship is debatable, but existing results center around the outcome that growth in countries with debt over 90% of GDP is about 30% lower than when debt is below this level. There is also considerable but not definitive evidence that high debt can cause slow growth, as well as vice versa.

The current U.S. debt is at 105% of GDP and is projected to keep growing under current polices. This elevated level of debt may be a factor in weak economic growth that the U.S. has been experiencing, but advocates for increased government spending are blaming this and other problems on reduced government spending. This is in spite of the fact that since 2008, government spending has been much higher than it has been for the vast majority of U.S. history.

Hunger Games: Reporters and pundits greatly exaggerate hunger in America

By James D. Agresti
April 11, 2013

Journalists and commentators are misleading the public to believe that a large portion of Americans are going hungry. Following in the footsteps of Paul Kurtz of CBS News, Bob Beckel of Fox News, and Paul Krugman of the New York Times, Stoyan Zaimov of the Christian Post recently made it seem that hunger is far more common than reality. In an article entitled, “Child Poverty, Hunger Rates in US Remain Alarmingly High,” Zaimov reported:

Alarming statistics released by the U.S. Census Bureau and U.S. Department of Agriculture earlier this month revealed that hunger and poverty rates in the country remain high, particularly among African-American children.

The U.S. Census Bureau determined that 25.1 percent of African-American households and 29.2 percent of households with children are food insecure. …

The high rate of children going hungry in America is notable, especially considering that the U.S. regularly ranks high in global lists measuring quality of life.

In stark contrast, the latest USDA/Census data on hunger (page 12) reveals that 1.3% of households with children had a child who was hungry at least once during 2011. The same report (page 19) also shows that on any given day, an average of 0.18% of households with children had a child who was hungry. This first measure of hunger (at least once during 2011) is 22 times lower than the “29.2 percent” figure cited by Zaimov, and the second measure (the average on any given day) is 162 times lower.

Like Kurtz and Beckel, Zaimov misinformed his audience by equating the term “food insecure” with “hunger.” In fact, most food-insecure households never experience hunger during any point of the year. As the USDA has explained, “Households classified as having low food security have reported multiple indications of food access problems, but typically have reported few, if any, indications of reduced food intake.” Revealingly, prior to 2006, the USDA labeled this same category of household “food insecure without hunger.”

USDA surveys on food security classify households into three main categories: “food secure,” “low food security,” or “very low food security.” In 2011, 85.1% of households were food secure throughout the entire year, while 9.2% had low food security, and 5.7% had very low food security. Households with very low food security were previously labeled “food insecure with hunger,” but even among these households, 35.4% of survey respondents reported that they had not been hungry during any point of the year (page 17).

Furthermore, a footnote in the latest USDA report reveals, “Not all individuals residing in food-insecure households were directly affected by the households’ food insecurity. … Young children, in particular, are often protected from effects of the households’ food insecurity.”

Although Zaimov wrote that the “25.1 percent” and “29.2 percent” figures were “released by the U.S. Census Bureau and U.S. Department of Agriculture earlier this month,” these figures actually come from the same USDA report referenced above (pages 11 and 13), which was published in September 2012 and contains survey data from 2011.

Zaimov, like Kurtz and Krugman, did not provide a link to support the figures he cited, making it difficult for readers to verify his claims. Zaimov responded to an email about this matter, acknowledging that the figures he cited were from the September 2012 report and stating that his editors will correct this error. However, Zaimov signaled no intent to correct the misleading presentation of hunger rates, writing:

I contacted World Vision (and a few other organizations) regarding the report and statistics, and they focused their answers less on the numbers and more on efforts to address the problem: http://www.worldvision.org

Krugman and Obama mislead on debts and deficits

By James D. Agresti
March 18, 2013

In a March 10th New York Times column, Nobel Prize-winning economist Paul Krugman wrote, “we do not, repeat do not, face any kind of deficit crisis either now or for years to come.” Citing recent projections from the Congressional Budget Office (CBO), Krugman insisted that “the case for making the deficit a central policy concern … has now completely vanished.” Three days later, President Obama echoed these sentiments on ABC’s “Good Morning America,” stating, “We don’t have an immediate crisis in terms of debt. In fact, for the next 10 years, it’s gonna be in a sustainable place.”

Those assertions are based on federal budget projections in CBO’s latest “Budget and Economic Outlook, but Krugman and Obama misrepresent these projections and ignore what this report explicitly states—which is that the U.S. government is on a path of “high and rising debt” that will have “serious negative consequences.”

First, the claims of Krugman and Obama hinge upon an unrealistic assumption that future budgets will follow CBO’s “baseline” scenario. When CBO analysts produce budget projections, they typically calculate a “baseline” scenario (which approximates current law) and an “alternative fiscal” scenario (which approximates current policy). These can be markedly different because certain current laws require future policy changes that are either impractical, untenable, or place significant burdens on the American people. The claims of Krugman and Obama are based on projections that assume these policy changes occur, when in fact, some of them have practically no chance of happening.

For example, less than a year from now, current law requires a “25 percent cut in Medicare’s payment rates for physicians,” but as the Medicare Trustees Report emphasizes, it is a “virtual certainty” that congress and the president will not allow these cuts to occur. This disconnect between current law and current policy stems from a 1997 law that was intended “to limit growth in spending on physician services to a sustainable rate, roughly in line with the rate of overall economic growth.” However, the law failed to work as planned, and in 2002, the New York Times reported, “For the first time, significant numbers of doctors are refusing to take new Medicare patients, saying the government now pays them too little to cover the costs of caring for the elderly.” Hence, legislators have overridden this law through a provision known as the “doc fix” for every year since 2003, and this is widely expected to continue in the future.

Significantly, the “doc fix” is not about maximizing profits for healthcare providers but ensuring that Medicare beneficiaries have access to care. Medicare pays hospitals an average of 10% below their costs of caring for Medicare patients, and Medicare pays physicians about 20% below private insurance rates. Cutting Medicare physician payments to 25% below this would bring these rates to levels proven to cause major problems with access to care. Government cannot consistently pay healthcare providers less than their costs of treating patients and expect them to keep treating them. The current-policy projections account for this reality, while the current-law projections that Obama and Krugman cite do not.

Exactly how large is the divide between current law and current policy? Under current law, CBO projects the budget deficit in 2015 will be $430 billion, whereas under current policy, CBO projects the deficit will be $644 billion—or 50% higher. Likewise, under current law, CBO projects that publicly held federal debt will grow from 72.5% of GDP to 77.0% during fiscal years 2013-2023, which is a 6.2% increase. In contrast, under current policy, CBO projects that publicly held debt will rise to 87% of GDP over this period, which is a 20% increase. This fact deflates Krugman’s claim that “budget office projections show the nation’s debt position more or less stable over the next decade.”

Worse yet, even under the unrealistic current-law scenario that Krugman and Obama assume, CBO is clear that “the projected path of the federal budget remains a significant concern,” because debt is already “very high by historical standards” and will remain so. CBO details the ramifications of this:

If the amount of debt held by the public remains so large, federal spending on interest payments will increase substantially when interest rates rise to more normal levels. Because federal borrowing generally reduces national saving, the stock of capital assets, such as equipment and structures, will be smaller and aggregate wages will be less than if the debt were lower. In addition, lawmakers will have less flexibility than they ordinarily might to use tax and spending policies to respond to unanticipated challenges. Moreover, such a large debt poses an increased risk of precipitating a fiscal crisis, during which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.

In simple terms, even under the highly optimistic current-law scenario, federal deficits and debts will suppress workers’ wages, degrade the government’s capacity to weather challenges, and could trigger a financial crisis. Furthermore, CBO states that these projections “do not fully reflect long-term budgetary pressures” caused by an aging population, rising healthcare costs, and subsidies of the Affordable Care Act. In the words of CBO, these factors “will substantially boost federal spending on Social Security and the government’s major health care programs, relative to GDP, for the next 10 years and for decades thereafter.”

Regarding these long-term budget stresses, Krugman writes, “I have yet to see any coherent explanation of why these longer-run concerns should determine budget policy right now.” For this, he need look no further than CBO’s latest long-term projections, which explain that “postponing action would substantially increase the size of the policy adjustments needed to put the budget on a sustainable course.” Likewise, CBO’s latest short-term projections state that making changes now “would allow for gradual implementation, which would give households, businesses, and state and local governments time to plan and adjust their behavior.”

CBO also emphasizes that actual budget outcomes could be far removed from projections because of “unanticipated changes in economic conditions” and “a host of other factors that affect federal spending and revenues.” To underscore this point, CBO notes that “even relatively small deviations can have a substantial impact on budget deficits.”

Contrary to what Krugman and Obama claim, CBO projections indicate that federal deficits and debts threaten workers’ wages, government’s ability to fund its programs, and the overall health of the economy. Thus, when politicians and commentators mislead citizens into thinking that “we don’t have an immediate crisis in terms of debt,” they hinder public support for actions that could stem the negative consequences of this debt.

Additional reading:
Blame for the national debt

Consequences of the national debt

Federal government finances deteriorated by $6.5 trillion in 2012

Does the Obama mandate force you to pay for abortions?

By James D. Agresti
February 26, 2013
Revised 2/28/13

In a recent National Public Radio broadcast and accompanying article entitled “Morning-After Pills Don’t Cause Abortion, Studies Say,” NPR journalist Julie Rovner reported that the Obama administration’s contraceptive mandate doesn’t force people to pay for abortion-inducing drugs. The article focuses on drugs commonly known as “morning-after” pills, which actually can be used to stop pregnancy for up to three-to-five days after unprotected sex.

Rovner’s argument consists of two major points: the first is that blocking the implantation of fertilized eggs does not constitute abortion, and the second is that morning-after pills do not block the implantation of fertilized eggs. Both of these claims are built upon half-truths and outright falsehoods that become evident through a comprehensive look at the scientific facts.

When does life begin?

Rovner supports her first point simply by quoting Susan F. Wood, an associate professor of health policy at George Washington University and a former assistant commissioner for women’s health at the FDA. Rovner sets the stage for this by stating that scientists thought morning-after pills “might make it more difficult for a fertilized egg to implant in a woman’s uterus,” but:

Technically, that’s not an abortion, says Wood. “We know that about half of fertilized eggs never stick around. They just pass out of the woman’s body,” she says. “An abortifacient is something that interrupts an established pregnancy.”

This claim, which NPR reports as a fact, stands in stark contrast to medical literature and the wide-ranging views of physicians, which reveal that what constitutes an abortifacient is a matter of great dispute. This is because the start of pregnancy typically is defined in two ways: either fertilization (when sperm unites with egg to form an embryo) or implantation (when the embryo implants in the uterus).

Medical literature abounds with the use of both definitions, and a 1998 survey published in the Journal of Maternal-Fetal and Neonatal Medicine found that obstetricians/gynecologists were evenly split on this issue, with 50% stating that pregnancy begins at fertilization, and 48% stating that pregnancy begins at implantation. The Encyclopedia of Birth Control aptly summarizes the situation:

Abortifacients, whether chemicals or objects, cause abortions, the termination of a pregnancy. However, because the definition of pregnancy varies, opinions vary greatly over just which contraceptives or fertility control methods involves abortifacients.

Although views about when pregnancy begins vary among medical professionals, the science of embryology is clear that the genetic composition of preborn humans is formed at the point of fertilization, and as the textbook Molecular Biology explains, this genetic information is “the very basis of life itself.” It also determines gender, eye color, hair color, facial features, and it influences characteristics such as intelligence and personality. Hence, a unique human life is formed at fertilization, and Wood’s point that “half of fertilized eggs never stick around” is as relevant to the issue of abortion as the statement that “all people eventually die” is relevant to the issue of homicide. At its core, this is about the difference between actively ending a life and nature taking its course.

NPR also neglects to report that Wood is an active political donor to Barack Obama and EMILY’s List, a political action committee “dedicated to electing pro-choice Democratic women to office.” From 2008 through 2012, Wood’s donations to EMILY’s List totaled $6,100, which was the most she gave to any candidate or political action committee. Throughout the article, it is clear when Rovner is citing someone who is pro-life, but she leaves Wood’s ideology unmentioned while uncritically accepting her claim that blocking the implantation of embryos does not constitute abortion.

Do the drugs destroy embryos?

Next, Rovner states that “people like” Gene Rudd, senior vice president of the Christian Medical and Dental Associations and a practicing OB-GYN, “worry that even if what the drugs do is not technically abortion, it’s still objectionable if it happens after fertilization.” Rovner then proceeds to argue that science doesn’t support the notion that “emergency contraceptives” block implantation. This second major point is also deceptively argued.

The manufacturers of all the pills in question have been required by the FDA to affirm that the drugs may block implantation. As such, the official company website for ella states that the drug “may also work by preventing attachment to the uterus.” The website for Plan B One-Step states, “It is possible that Plan B One-Step® may also work by … preventing attachment (implantation) to the uterus (womb).” And the website for Next Choice states that the drug “works by preventing … attachment of the egg (implantation) to the uterus (womb).”

However, in June 2012, the New York Times published an article claiming that these labels “do not reflect what the science shows.” NPR cites this Times article as “fairly definitive research” showing that the Plan B drug only works “by preventing ovulation, and therefore, fertilization.” The article, written by Pam Belluck, asserts that “studies have not established that emergency contraceptive pills prevent fertilized eggs from implanting in the womb, leading scientists say.” Who are these leading scientists?

One of them is Susan Wood, the same professor quoted by NPR. Like NPR, the Times fails to reveal that she is an active political donor to Barack Obama and EMILY’S list. Another key authority quoted in both of these articles is Diana Blithe, a biochemist and contraceptive researcher at the National Institute of Child Health and Human Development. As it turns out, she also is an active political donor to Barack Obama and gave him $2,500 in 2012. Naturally, political associations don’t determine whether someone is right or wrong, but both articles rely upon the assertions of these individuals to make key points and quote them as if they were neutral scientific authorities.

The Times quotes several other authorities to support its claims, but the only clinical evidence presented in either of these articles are three studies conducted in Australia and Chile. The Times describes all of the studies with a combined total of five sentences that provide a short synopsis, the years the studies were conducted, the name of one of the researchers, and a quote from Blithe. No data is presented, no links to the studies are provided, no titles are revealed, and no journals are cited. Just Facts identified two of the studies, one of which is also cited by NPR, which in contrast to the Times, does provide a link to it. However, the details of these two studies actually undermine the central narratives of NPR and the Times.

The study cited by NPR determined how many women became pregnant after having unprotected sex during their fertile cycle and then taking the active ingredient in Plan B/Next Choice. Of 87 women who had not ovulated before taking the drug, none of them became pregnant, although based on the known odds of becoming pregnant, the study estimated that 13 typically would have become pregnant if they had not taken the drug. Conversely, of 35 women who had ovulated before taking the drug, 6 of them became pregnant, which is close to the 7 pregnancies that would be expected if they had not taken the drug.

These pregnancies among the women who ovulated before taking the drug provide a measure of evidence that the drug is not effective if administered after ovulation. Based on this minuscule sample of 6 pregnancies, NPR concluded that Plan B does not block implantation. The logic behind this, to quote NPR, is that the drug “stops an egg from being released from a woman’s ovary and thus prevents any chance of fertilization and pregnancy.” For the drug to be reasonably effective through this mechanism, it should prevent ovulation until six days after intercourse because sperm can live for this long in a women’s body. As explained in the textbook Langman’s Medical Embryology, “sperm deposited in the reproductive tract up to 6 days prior to ovulation can survive to fertilize oocytes [eggs].”

This is where the NPR and Times stories unravel. Although the abstract of study gives no indication of any significant caveats, if one is willing to purchase access to the full study (at a cost of $31.50) and examine its details, vital information is revealed. The study found that at least two thirds of the 87 women who had not yet ovulated before taking the drug actually ovulated within five days of taking the drug. This clashes with NPR’s claim that the drug “stops an egg from being released from a woman’s ovary and thus prevents any chance of fertilization and pregnancy.” Likewise, it undermines the Time’s claim that “scientists say the pills work up to five days after sex, primarily stalling an egg’s release until sperm can no longer fertilize it.”

The study’s authors attempt to explain this result by theorizing that the drug causes “increased cervical mucus viscosity” that “impedes the migration of sperm….” In other words, they say it makes the mucous in a woman’s reproductive tract so thick that sperm can’t swim to the egg. To support this theory, the authors cite a 1974 study in the journal Contraception that found the drug had such an effect, but the authors fail to mention that a 2002 study in the same journal found that the drug “affects sperm function only at high concentration and the contribution of these effects to emergency contraception is unlikely to be significant.”

Even more significantly, a 2007 study in the journal Human Reproduction found that at the dosage used for emergency contraception, “the drug had no effect on the quality of cervical mucus or in the penetration of spermatozoa to the uterine cavity.” The second study identified by Just Facts that was cryptically mentioned in the Times is merely an extension of the first study, with a larger sample size (8 pregnancies instead of 6) and similar results.

So in summation, the scientific evidence is compelling that the active ingredient in Plan B and Next Choice doesn’t delay ovulation beyond the timeframe that egg and sperm can unite to form a human life. Furthermore, the drug does not impair ability of sperm to swim to eggs. This doesn’t mean that a yet unknown mechanism of the drug may prevent sperm and egg from uniting, but it does mean that the principal claims of NPR, the New York Times, and the majority of scientists they cite are not consistent with the known facts of this matter.

What about ella and Italy?

Ella has a different active ingredient than the other two drugs, and the Times and NPR cite no specific clinical evidence to support their assertions that the drug probably does not derail implantation. They merely rely upon claims from scientists about unidentified studies, and both of the articles cite Blithe as their primary authority on this subject.

Both articles also point to the nation of Italy as evidence that ella doesn’t cause abortions. To quote the Times:

European medical authorities have not mentioned an effect on implantation on Ella’s label, and after months of scrutiny, Ella was approved for sale in overwhelmingly Catholic Italy, where laws would have barred it if it could be considered to induce abortion, said Erin Gainer, chief executive of Ella’s manufacturer, Paris-based HRA Pharma.

Based upon the statement above, one would believe that Italy bans abortions and would not have approved this drug unless the government was certain that it did not cause abortions. The reality is that abortion has been legal in Italy since 1978, and in 2009, the Italian agency responsible for approving drugs authorized the of use RU-486, which unambiguously is an abortifacient.

How about IUDs?

In this article, NPR doesn’t mention IUDs or intrauterine devices, which the Obama administration is also forcing insurance plans to cover and to do so without copays. The Times article mentions in passing that “scientists say” IUDs “can work to prevent pregnancy after an egg has been fertilized.” This is borne out by a wealth of evidence including a 2002 paper on the American Journal of Obstetrics and Gynecology, which shows that “both prefertilization and postfertilization mechanisms of action contribute significantly to the effectiveness of all types of intrauterine devices.”

Likewise, the Obama Administration’s Department of Health and Human Services, which is the same department that issued the contraceptive/abortifacient mandate, has published a “Birth control methods fact sheet,” which states that copper IUDs can keep “the fertilized egg from implanting in the lining of the uterus,” and hormonal IUDs affect “the ability of a fertilized egg to successfully implant in the uterus.”

Thus, regardless of whether Plan B, Next Choice, or ella cause abortion, the Obama administration is forcing insurers, and thus, their customers to pay for devices that destroy embryos before they implant, which many doctors, scientists, and citizens consider to be abortion.

Economy declined as government spending rose

By James D. Agresti
February 4, 2013

In the wake of stunning news that the U.S. economy shrunk by 0.1% in the last quarter of 2012, prominent media outlets and commentators are reporting that lower government spending is the cause of the economic decline. In reality, however, government spending rose by 0.8%, and the claim that it fell stems from a federal report that defines “government spending” so narrowly that it excludes 47% of all government spending.

On January 30th, the U.S. Bureau of Economic Analysis (BEA) issued a preliminary report stating that gross domestic product (GDP) decreased by 0.1% in the fourth quarter of 2012. The report emphasized that this is an “advance estimate … based on source data that are incomplete or subject to further revision….” The report also stated that the decrease in GDP “reflected negative contributions from private inventory investment, federal government spending, and exports….”

Seizing upon the “federal government spending” aspect of this report, some journalists, commentators and organizations have claimed that reduced government spending is dragging down the economy. This was the focal point of a combative exchange on CNBC between on-air editor Rick Santelli and senior economics reporter Steve Liesman. Attributing the decline in GDP to left-leaning government policies, Santelli stated, “When you act like Europe, you get growth rates like Europe, and our discussions with economists sounds like we’re in Europe!” To which Liesman shot back, “We reduced government spending by 15 percent! That’s not Europe!”

In fact, government spending rose by 0.8%, and the decline that Liesman and others are citing only applies to a narrow segment of spending that excludes most social program benefits. This is shown in BEA’s report on GDP, which reveals that the “government spending” in this report consists of “government consumption expenditures and gross investment.” This is merely a subset of government spending that excludes 69% of all federal spending and 20% of all state and local spending. As BEA explains in its “Primer on Government Accounts” and its webpage on measures of government spending“:

• “Consumption expenditures include what government spends on its work force and for goods and services, such as fuel for military jets and rent for government buildings and other structures.”
• “Gross investment includes what government spends on structures, equipment, and software, such as new highways, schools, and computers.”
• “Government consumption expenditures and gross investment … is a measure of government spending on goods and services that are included in GDP.”
• “Total spending by government is much larger than the spending included in GDP.”

In sum, what BEA categorizes as “government spending” in its GDP reports doesn’t include items such as unemployment benefits, food stamps, welfare payments, subsidized housing, Medicaid benefits, Social Security benefits, Medicare benefits, foreign aid, and interest on the national debt. This amounts to 47% of all federal, state and local government spending, largely consisting of social programs that advocates for more government spending say will spur economic growth.

The BEA report in question estimates that “government spending” declined by 15% in the fourth quarter of 2012, consisting of a 22% decline in national defense, a 1% increase in other federal spending, and 1% decrease in state and local spending. Again, these figures are preliminary, they only apply to selected categories of government spending, and real total government expenditures actually increased by 1%.

Hence, if one were to draw a simplistic conclusion from this data (as reporters and analysts have done), an accurate assessment would be that increased overall government spending—with more spending on social programs and less on national defense—accompanied the decline in GDP.

It is important to note that the above-cited figures are comparisons between the third and fourth quarters of 2012, and quarterly figures on government spending tend to fluctuate. Thus, when journalists and commentators focus on short-term data as they have done in this case, they obscure the larger picture of what has taken place in the past several years and over the longer term. Consider the following.

As shown in the graph below, total government spending rose dramatically in 2008 and 2009 and has since consumed more of the nation’s economy than at any time since 1960, which is as far back as this BEA data goes. BEA also tracks a slightly less inclusive measure of government spending (called current expenditures) that dates back to 1929. By this measure, government spending consumed more of the nation’s economy during 2009-2011 than ever recorded in the history of the nation, including the peak of World War II. And in 2012, current spending was just a hair below the peak of World War II.

Further reading:
Reporters distort the truth about government spending

Paul Krugman’s Jihad

Warren Buffett’s fraudulent tax claims (part 2)

Federal government finances deteriorated by $6.5 trillion in 2012

By James D. Agresti
January 30, 2013

In January 2013, the U.S. Treasury released its annual “Financial Report of the United States Government,” which presents an “accrual” accounting of the federal government’s finances. In contrast to the White House budget, which primarily uses “cash” accounting, this Treasury report uses accounting standards like those that the government requires of large corporations.

Based on this newly published data, Just Facts calculates that our national government has $67.4 trillion in debts, liabilities, and unfinanced Social Security/Medicare obligations. This represents a significant deterioration over the past year. Although the official federal deficit for fiscal year 2012 was $1.1 trillion, this comprehensive accounting reveals that the federal government’s fiscal position deteriorated by $6.5 trillion—or an average of $53,000 per household.

Beyond the commonly cited national debt, the accrual accounting methods used in this Treasury report account for other federal financial obligations, such as retirement and healthcare benefits for federal employees, liabilities from government-sponsored enterprises (like Fannie Mae and Freddie Mac), and obligations to current participants in Social Security and Medicare that exceed the programs’ dedicated revenues.

The report also accounts for federal government assets, such as cash on hand, certain properties and equipment, and stocks in companies such as General Motors. The report, however, does not account for federal stewardship land and heritage assets, such as national parks and the original copy of the Declaration of Independence. While these items have tangible value, the report explains that the government “does not expect to use these assets to meet its obligations.”

In total, the federal government’s comprehensive fiscal shortfall now equals $214,000 for every person living in the U.S. or an average of $557,000 per household. The precise methodology for computing these figures is detailed in Just Facts’ national debt research, which will soon be updated with this new data. This research also shows that this shortfall is based upon federal agency projections that incorporate some highly optimistic assumptions. As such, the true shortfall may be considerably worse.

Further reading:
The Reality of the Federal Government’s Fiscal Hole

Consequences of the National Debt

Paul Krugman’s claims about the dangers of government debt

Roe v. Wade allows abortions for all 9 months of pregnancy, not just the first 3

By James D. Agresti
January 18, 2013

With the 40-year anniversary of the Supreme Court’s ruling in Roe v. Wade just days away, media outlets are trumpeting a Pew Research poll showing broad support for the court’s decision, which overturned the laws of 30 states that barred abortions except to save the life of the mother. However, the poll misrepresents Roe v. Wade in a way that manipulates public opinion in favor of the ruling.

The flaw underlying this Pew poll is revealed by a 2002 Gallup analysis of 146 survey questions about abortion posed by 18 different polling organizations. Gallup found that public opinion was generally “consistent across differently worded questions. But in a few cases, particularly with respect to Roe v. Wade, the responses vary widely, depending on the information provided in the question.” Lydia Saad, the senior Gallup poll editor who authored the analysis, explained:

Most survey questions about Roe v. Wade provide the respondent with information about the case, and these details appear to have a major impact on the answers. … If Roe v. Wade is presented only as legalizing abortion in the first three months, support for the decision is much higher than if it is characterized as making abortion legal throughout pregnancy or for any reason.

The designers of the Pew poll boost support for the ruling by telling respondents: “In 1973 the Roe versus Wade decision established a woman’s constitutional right to an abortion, at least in the first three months of pregnancy. Would you like to see the Supreme Court completely overturn its Roe versus Wade decision, or not?”

That language is misleading because Roe v. Wade, along with its accompanying ruling, Doe v. Bolton, mandate that abortion be legal up until the point of birth if any one physician willing to perform an abortion says it is needed for “the preservation of the … health of the mother.” Furthermore, Roe cites specific examples of what may be considered harmful to a mother’s health, such as the “stigma of unwed motherhood,” the work of “child care,” and “the distress, for all concerned, associated with the unwanted child.”

Likewise, Doe v. Bolton, which was issued by the Supreme Court on the same day as Roe v. Wade with an order that they “are to be read together,” states that “the medical judgment may be exercised in the light of all factors — physical, emotional, psychological, familial, and the woman’s age — relevant to the well-being of the patient. All these factors may relate to health.”

Thus, “health,” as defined by Roe v. Wade and Doe v. Bolton, provides broad leeway to perform abortions throughout pregnancy. In Roe v. Wade, the majority wrote that their ruling does not permit abortions “at whatever time, in whatever way, and for whatever reason” a woman chooses, but they provided no example of a circumstance where abortion could be prohibited. The implications of this are evident in the words of noted abortionist Warren Hern, author of “the nation’s most widely used textbook on abortion standards and procedures.” In 1997, Hern explained: “I say every pregnancy carries a risk of death,” and “I will certify that any pregnancy is a threat to a woman’s life and could cause grievous injury to her physical health.”

Nonetheless, some states have passed laws that restrict late-term abortions without the broad health exceptions required under Roe v. Wade. Moreover, a 2011 New York Times op-ed explains that abortion proponents have generally shied away from challenging these laws in court because the laws are popular with the public and because of fear that the Supreme Court may strike down Roe. A number of Democratic Senators and Representatives (including Barack Obama) have sponsored federal legislation to overturn all local, state and federal laws that defy Roe v. Wade, but the bills were not voted upon.

Regardless of what current abortion laws may be, this new Pew poll significantly misrepresents Roe v. Wade, thereby manufacturing support for it. On top of this, major medias outlets such as the Associated Press, CNN, Reuters, Politico, and the Los Angeles Times are broadcasting these misleading poll results to their audiences. Perhaps most critically, in the same articles, some of these media outlets explicitly spread the falsehood that Roe merely permits abortions for the first three months of pregnancy.

Raising payroll taxes to save Social Security will cost the average worker $73,000

By James D. Agresti
January 12, 2013

To resolve Social Security’s looming financial shortfalls, one of the primary ideas being promoted is to raise taxes. Such a proposal was recently outlined in a Fox Business commentary by financial planning and retirement specialist Gail Buckner, who asserts that a “small” increase in the payroll tax rate would cover Social Security’s projected shortfalls for the next 75 years. However, a careful look at the plan’s details show that the costs would be substantial, and even with these extra taxes, the program would still be fiscally unsound.

To summarize the plan and its political implications in Buckner’s words:

I bet if you asked your friends and colleagues if they’d be willing to pay 1.3% more to shore up Social Security for the foreseeable future, the overwhelming response would be, “Is that all we need to do? I’m in!”

Of course, no politician will ever mention this. That would entail uttering the deadly phrase “raise taxes.” (It would also make Social Security less useful as a means for scaring voters.) But, really, that’s what it would take: 1.3% more- if we act today. The longer we delay, the bigger the adjustment.

In reality, this proposal would cost workers far more than she suggests. Buckner arrives at her 1.3% figure by starting with the Social Security Administration’s projection of a 2.67% long-term actuarial funding deficit. “In other words,” she says, “if we raised the payroll tax rate by this amount today, we would solve the problem.” She then slashes this figure of 2.67% in half because “employers and employees split” the payroll tax. However, that math is based upon a common misunderstanding about who bears the burden of taxes. As explained in the textbook Public Finance:

When we consider the burden of a tax, we must distinguish between the burden as it is specified in the tax law and the true economic burden. … Consider a simple example. The U.S. Social Security payroll tax requires that employers and employees split the tax, each paying one-half of the total. … But, the true economic incidence of the payroll tax is quite different. The employer has some ability to adjust the employee’s wage and pass the employer’s half of the tax on to the employee. In fact, the employee may bear the entire tax.

The Congressional Budget Office (CBO) concurs: “In the judgment of CBO and most economists, the employers’ share of payroll taxes is passed on to employees in the form of lower wages.” Likewise, the U.S. Government Accountability Office states: “While employees and employers pay equal amounts in social insurance taxes, economists generally agree that employees bear the entire burden of social insurance taxes in the form of reduced wages.” Furthermore, self-employed workers must directly pay both the employee and employer taxes.

Thus, workers would bear the full 2.67% burden of the tax, not 1.3%. This may not sound like much at first glance, but this is a percentage point increase, not a percentage increase, meaning that the current Social Security payroll tax of 12.4% would increase by 2.67 percentage points or by 21%. And because this additional tax is levied every year, it would add up to significant money. For example, under this plan, average-wage earners now entering the workforce would forfeit an additional $73,458 of their salaries to payroll taxes over the course of a 45-year career. (This is measured in 2012 dollars. Without accounting for inflation, the figure is $150,323.)

Moreover, these additional taxes may not even come close to solving Social Security’s fiscal problems. This is because the actuarial deficit of 2.67% is based upon the Social Security Administration’s intermediate projections, which are highly tenuous. Although these projections “reflect the Trustees’ best estimates of future experience,” the Trustees emphasize that “significant uncertainty” surrounds these projections. More importantly, the track record of these projections offers cause for serious concern. For example:

• In 2010, the Social Security Administration projected that the program’s trust fund would increase in real value through 2020. One year later in 2011, this projection was revised to 2018. One year after this, the projection was revised to 2012—or eight years earlier than estimated only two years prior. Hence, the trust fund in now projected to start declining in real value in 2013.

• The 2008 Trustees Report projected that Social Security would have $1.31 in income for every dollar it spent in 2011. The actual figure turned out to be $1.09.

• In 1977, President Carter signed a bill that increased Social Security payroll taxes and changed the formula governing benefit increases. At the signing ceremony, Carter said it “is never easy for a politically elected person to raise taxes,” but these changes “will guarantee that from 1980 to the year 2030, the Social Security funds will be sound.” As it turned out, the program’s trust fund continued to deteriorate until 1983 when President Reagan signed a bill that further increased taxes, raised the retirement age, and made other changes to keep the program solvent.

Perhaps more significantly, a recent paper in the journal Demography found that the Social Security Administration is using an antiquated method to project life expectancies, and as a result, the program “may be in a considerably more precarious position than officially thought.” For example, the study’s findings indicate that by 2031, Social Security Administration projections understate the cost to keep the program solvent by an average of $553 per taxpayer per year (in 2012 dollars). And this accounts for only one of many uncertainties in the government’s projections.

Hence, if politicians raise taxes to cover Social Security’s projected shortfalls, the actual shortfalls might be much greater, requiring yet more tax increases. This has been the repeated history of the program. In fact, when the program began, the federal government sent a brochure to workers stating that “the most you will ever pay” to fund Social Security is an annual tax of 6% on your first $3,000 of earnings. Accounting for inflation, this is a maximum tax of $1,741 per person. Yet in 2013, the maximum Social Security payroll tax is $14,099 or eight times the promised maximum. This does not include other taxes that are also levied to fund Social Security.

Buckner says there is “plenty of time to act” to fix Social Security because the trust fund won’t become insolvent until 2033. In addition to the fact that this date is subject to a great deal of uncertainty, the longer we wait to address the problem, the higher the cost will be. For instance, if we wait until 2033 to fix the program’s finances, the Social Security Administration projects that payroll taxes would need to increase by 32.8% to keep the program solvent, as opposed to 21% if we act now. This same principle applies to our national debt: the longer we fail to get it under control, the larger the problem becomes.

Should the U.S. adopt Australia’s strict gun laws?

By James D. Agresti
December 20, 2012

In the aftermath of the Dark Knight shooting in Aurora, Colorado, media outlets were awash with misleading claims about violence and firearms. Since the tragic school shooting in Newtown, Connecticut, some of the same false assertions are being repeated, but another has emerged as a common talking point: this is the claim that Australia’s 1996 gun laws and government-funded gun buyback prove such policies are effective in stemming violence. Versions of this narrative have recently been circulated by ABC News, the New York Times, CNN, Slate, the Huffington Post, and countless other smaller outlets.

ABC News, for an example, published an article entitled, “Will Lessons From Down Under Stem the Undertaker Here?” In this piece, correspondent Nick Schifrin reports that strict Australia gun laws passed in 1996 have proved “extremely effective. In the last 16 years, the risk of dying by gunshot in Australia has fallen by more than 50 percent. The national rate of gun homicide is one-thirtieth that of the United States.”

Statistics like these do more to mislead than inform. First, a simple comparison of current firearm homicide rates between countries cannot possibly establish the impact of their gun control laws. This is because there are numerous other factors endemic to each country that impact homicide rates, such as their law enforcement and criminal justice systems, the portion of children raised in single-parent households, poverty rates, and many other relevant variables. Schifrin’s argument is analogous to an argument made by the NRA that right-to-carry states have a 28% lower murder rate than the rest of the country. Such statistics tell us little. To provide any legitimate indication of the effects of gun laws, before-and-after comparisons are almost always necessary.

Schifrin does provide a before-and-after comparison of the “risk of dying by gunshot in Australia” over the past 16 years, but this is deceptive because it accounts for lives taken with guns while failing to account for lives saved with guns. As shown in several studies summarized in the Journal of Criminal Law and Criminology, in the vast majority of cases where someone uses a gun for self-defense, a bullet is never even fired because the would-be assailant retreats when he discovers that his target is armed. Schifrin’s “risk of dying by gunshot” statistic fails to account for such scenarios.

The “risk of dying by gunshot” statistic also fails to account for weapons substitution, which occurs when murderers use whatever weapons are readily available to them. Would someone judge a gun control law to be a success if every averted gun murder were replaced by another type of murder? Of course not, but the press commonly cites statistics that fail to account for such outcomes. For these reasons, to assess the full effects of gun laws on homicides, one must look at all homicides, not just those committed with firearms.

The homicide data does not fit the storyline commonly advanced by the media. Quite to the contrary, the data shows that U.S. homicide rates have dropped more rapidly since the federal ban on assault weapons expired than homicide rates dropped in Australia after its strict gun laws were implemented. To be precise, seven full calendar years have transpired since the federal ban on assault weapons and high-capacity magazines elapsed in 2004, and over this entire period, the U.S. murder rate has averaged 3.9% lower than it was when the ban expired. Correspondingly, in the seven years that followed the implementation of Australia’s gun laws in 1997, the Australian murder rate averaged 0.4% lower than it was when the laws took effect.

If association equals causation—as the ABC article suggests—the expiration of the federal assault weapons ban was 10 times more effective in reducing homicides than the enactment of Australia’s tight gun laws and gun buyback. Of course, cause and effect cannot be proved because many other factors affect murder rates, and it is practically impossible to accurately isolate all of these effects. Nevertheless, the above graph allows us to observe trends and constrains the impact of many variables because the data is drawn from large population sets with limited demographic changes from year to year.

The other media outlets cited above draw similarly flawed conclusions based upon data from Australia. The New York Times editorial board also points to “a decline in murders involving firearms” that occurred after “the British government banned all private ownership of automatic weapons and virtually all handguns” in 1996. What the editors fail to mention is that homicide rates, which were relatively low to begin with, actually increased in the wake of this ban. Again, this does not prove cause and effect, but it does prove that the Times storyline is not founded in objective reality.

Other fallacies about violence and guns that are being propagated by media outlets include claims that “assault rifles” are legal in the U.S. and that guns are ineffective for self-defense. These and other falsehoods were addressed after the Dark Knight shooting in an article from Just Facts.

In the words of a major gun control analysis published by the National Academies of Science, “Drawing causal inferences is always complicated and, in the behavioral and social sciences, fraught with uncertainty.” This means that simplistic and misleading claims on all sides of the gun control debate have the potential to stoke public opinion for policies that lead to more deaths than would occur in the absence of these polices.

Warren Buffett’s fraudulent tax claims (part 2)

By James D. Agresti
December 6, 2012

Note: The first part of this two-part series is located here.

In addition to his skewed tax rate comparisons, Buffett advanced several other misleading narratives in his recent New York Times commentary. These pertain to (1) the negative effects of higher tax rates, (2) the notion that his proposed “minimum tax” will stop lobbyists from obtaining tax breaks, and (3) what it will take to get the national debt under control.

Buffett opened his op-ed by declaring that no negative economic fallout can possibly result from increasing taxes on the wealthy. To drive the point home, Buffett said that when he managed funds for investors, “Never did anyone mention taxes as a reason to forgo an investment opportunity that I offered.” However, the written record of Buffett’s storied career betrays this rhetoric. Indeed, some of his primary business and investment strategies involve calculated decisions to elude taxes:

[Buffett's] approach to portfolio management may appear quirky … but it has two important economic benefits … It increases aftertax returns. When you sell a stock at a profit, you will be hit with capital gains taxes, eating into your profit. The solution: leave it be. If you leave the gain in place (this is referred to as an unrealized gain), your money compounds more forcefully. Overall, investors have too often underestimated the enormous value of this unrealized gain—what Buffett calls an “interest-free loan from the Treasury.” The Warren Buffett Way, pages 173-4

Berkshire doesn’t pay dividends, and Buffett doesn’t like them. Why? Taxes. When dividends are paid, income is taxed twice. First, the company pays income tax; then the shareholder pays tax on his dividends. The Winning Investment Habits of Warren Buffett & George Soros, page 119

Unless you’re in the lowest tax bracket, you should buy only tax-free (municipal) bonds outside your retirement accounts. Otherwise too much of your bond income will end up in the hands of the IRS. The Intelligent Investor, page 106 (The preface and appendix of this book were authored by Buffett, and the following quote from Buffett appears on its cover: “By far the best book on investing ever written.”)

While these tax-avoidance strategies may have helped Buffett, creditable sources explain how such logical reactions to taxes can harm the economy. For example:

[I]t is marginal tax rates that affect incentives for taxpayers to work, to save, or to take advantage of various tax preferences. These incentives may distort taxpayer choice, which in turn may promote an inefficient allocation of society’s labor and capital resources. A less efficient allocation of labor and capital resources leaves society with a lower level of output of goods and services than it would otherwise enjoy in the absence of tax-system induced economic distortions. U.S. Joint Committee on Taxation

[H]igh capital gains tax rates discourage the realization of capital gains and encourage the realization of capital losses. Investors induced to hold appreciated assets because of capital gains tax when they would otherwise sell are said to be “locked in.” Lock-in effects impose efficiency losses when investors are induced to hold suboptimal portfolios with inappropriate risk or diversification, or to forego investment opportunities offering higher expected pre-tax returns. NTA Encyclopedia of Taxation and Tax Policy

[B]ecause the [corporate income] tax reduces capital investment in the United States, it reduces workers’ productivity and wages relative to what they otherwise would be, meaning that at least some portion of the economic burden of the tax over the longer term falls on workers. Congressional Budget Office

All of the economic impacts outlined above can reduce productivity, which inflicts escalating harm on America’s economy. As explained by the Congressional Budget Office, “A small change in the growth of productivity can, over a long period, have a larger effect on GDP than most recessions do … [because] the shortfall from a recession is generally temporary, whereas a change in the long-term rate of productivity growth reduces output by an ever-increasing amount.” This is only one of many economic consequences that can result from higher taxes on the wealthy, and of course, those with lower incomes.

Nevertheless, to support his argument that higher taxes on the wealthy won’t have negative effects, Buffett cited the rapid economic growth America enjoyed in the 1950s when top marginal federal tax rates on income and capital gains were far higher than now. This narrow focus on a few federal tax brackets obscures the countless larger realities that define these eras. For instance, during the 1950s, combined taxes at all levels of government consumed 23% of the U.S. economy, as compared to 26% over the past ten years. More relevantly, combined government spending, which is a broader measure of government’s economic footprint, averaged 22% of the economy in the 1950s versus 33% over the past ten years—a 50% increase. As the graph below shows, the 1950′s were marked by smaller government, while since 2009, government spending has been a greater portion of the economy than ever recorded in the history of the U.S., including the peak of World War II:

Perhaps most significantly, since the late 1950s, the federal government has spent a rapidly increasing share of its budget on social programs, many of which reduce peoples’ incentives to work and save, thus depriving the economy of their labor and investment. Even Lawrence Summers, Obama’s former chief economist and Clinton’s Treasury Secretary, affirmed that government assistance programs provide “an incentive, and the means, not to work.”

Buffett’s arguments for raising taxes on the wealthy are very similar to a campaign waged in 1969 to pass the “minimum tax,” which is now known as the “alternative minimum tax” or AMT. Buffett even used the same name (“minimum tax”) to describe his proposal. The detailed history of the AMT is documented here, but the condensed version is that it was sold to the public using rhetoric that targeted a small number of wealthy individuals amounting to 0.0002% of taxpayers. However, the tax was not automatically indexed for wage growth or even inflation, and now unless this tax is reduced, 11% of taxpayers will be liable for the AMT in 2013, and this figure will steadily rise to more than 50% by 2037.

Notably, Congress and President Obama did the same with the Affordable Care Act and did not index its taxes for wage growth or even inflation. Thus, due to a phenomenon known as bracket creep, these taxes—some of which were targeted only at high-income earners—will fall on an ever-increasing share of Americans as time progresses.

Buffett wrote that his proposal for a minimum tax will “block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours.” This is deceptive not just because of the faulty tax rate comparison—but also because Buffett has proposed a minimum tax on “taxable income,” which excludes numerous categories of income. For example, one of the primary means by which wealthy investors limit their taxes is by investing in tax-free municipal bonds. Since federal law does not classify income from these bonds as “taxable income,” this income would be entirely exempt from Buffett’s minimum tax. Hence, instead of stopping wealthy influence peddlers from securing tax breaks, Buffett’s tax would raise the incentives to lobby so that their favored sources of income can be classified as nontaxable.

Finally, Buffett called for taming the national debt by bringing federal revenues up to 18.5% of GDP while bringing spending down to 21%. Ironically, the Congressional Budget Office has projected that if the Bush tax cuts and even some of the Obama tax cuts are renewed, federal revenues will reach 17.9% of GDP in just two years, which is 97% of Buffett’s preferred tax level. Meanwhile, the Congressional Budget Office has also projected that under current policies, federal spending is going to skyrocket far beyond Buffett’s target due to increasing costs from Social Security and mandatory healthcare programs such as Medicare, Medicaid, and the health insurance subsidies established under the Affordable Care Act. Yet, Buffett pushed for tax increases without offering a single specific proposal to control spending.

Buffett has called on Congress to “offer a realistic and concrete plan” for taming the national debt and has proclaimed that “nothing less is acceptable.” He has also designated revenue and spending levels that would allow the federal government to consume about the same share of the economy that it has averaged for the past 40 years. Paradoxically, to meet these targets, the federal government probably will not need the tax increases that Buffett is demanding, but it will unquestionably need serious spending cuts, which Buffett has thus far failed to address.