Beat the Press is Dean Baker's commentary on economic reporting. Dean Baker is co-director of the Center for Economic and Policy Research (CEPR).

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The NYT ran a news article promoting a trade agreement between the United States and the European Union. The article wrongly referred to the trade deal as a "free trade" agreement three times. The agreement is almost certain to include greater restrictions on intellectual property. These restrictions are forms of protection, they are the opposite of free trade. It would have been possible to both make the piece more accurate and save space by leaving out the word "free."

It also told readers that European leaders:

"have argued that a free-trade deal would be both a cheap and a relatively painless way to stimulate growth. ...

"Richard Bruton, the Irish minister for jobs, enterprise and innovation, said in a statement that a trade deal could lift the E.U. economy by €120 billion, or $160 billion, per year and the U.S. economy by $100 billion."

The piece provides no clear context for these numbers, nor does it make it clear that these are one time gains that are projected to be realized over a substantial period of time. (Most of the terms in any agreement will be phased in over time.) These gains come to about 0.7 percent of GDP for the U.S. and 0.9 percent of GDP for the EU. Assuming it takes ten years to achieve them, the projections imply that the deal will increase growth in the U.S. by roughly 0.07 percentage points and in the EU by 0.09 percentage points.

This increment to growth will barely be noticeable and will have a minimal impact on employment. If the EU leaders are looking to this deal as a source of stimulus, as the article asserts, then they have a very poor understanding of economics.

 

 

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Those of you who didn't know the cause of Japan's debt problems, or perhaps that it even had debt problems, will be happy to know that the NYT has the answers for you. In an article on the new prime minister Shinzo Abe's plans for economic stimulus and expansionary monetary policy it told readers:

"At the root of Japan’s debt problems was a similar attempt in the 1990s by Mr. Abe’s Liberal Democratic Party to stimulate economic growth through government spending on extensive public works projects across the country."

That's good to know. Those of us who look at data on Japan's debt might have thought that the main reason for the growth of the debt in Japan was the collapse of the stock and housing bubbles in 1990-1991. The economic downturn and deflation caused by this collapse had already raised the debt to GDP ratio by 10 percentage points by 1993 (@$1.6 trillion in the United States), a point at which deficits were still minimal.

We also might not have known that Japan has debt problems. The interest burden of its debt is now roughly 1.0 percent of GDP, lower than the interest burden in United States at any point in the post-World War II era and less than one-third of the peak burden hit in the early 90s. The interest rate on 10-year Japanese government bonds has been hovering near 1.0 percent. This isn't the sort of interest rate that is ordinarily associated with a debt problem.

That's why readers are thankful for the information the NYT gave us in this article. If they had just relied on the data, they wouldn't know these things about Japan's economic situation.

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The NYT has a confusing analysis of the China's economy in which it tells readers that the country suffers from a labor shortage because employers in certain sectors (nursing homes and restaurants) can't afford to pay workers enough to pull them away from other sectors. This is not evidence of a labor shortage, this is the way capitalist economies work.

As an economy grows and goes through sectoral shifts there will always be businesses and sometimes whole sectors that collapse because they are no longer competitive. For example, in the United States millions of farms went out of business because they could not afford to pay workers as much money as they could earn in manufacturing. This did not mean that the United States had a labor shortage, it simply meant that many farms had become uncompetitive.

Similarly, if China has restaurants or nursing homes that can't afford to pay the prevailing wage then it means that they are not competitive. If there is real demand for these services in China, then they should be able to raise their prices enough to pay higher wages. (There may be demand for nursing home care which is not being met because people cannot afford to pay for it, but this is a problem of income distribution, not evidence of a labor shortage.)

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"Chained CPI" is the new magic phrase going around Washington these days. This is how the government can cut Social Security and pretend it is not really cutting Social Security.

If anyone has not yet heard the story, the plan is to change the indexation formula for the annual cost of living adjustment by using the chained CPI to measure inflation. It's not worth going into the details (the people proposing it don't care, why should you?), but the point is that the chained CPI would reduce the annual adjustment by 0.3 percentage points.

This may sound trivial but it adds up over time. After ten years a retiree's benefits would be 3 percent lower, after twenty years 6 percent lower and someone surviving to collect benefits for thirty years would see a 9 percent cut. If we assume the average retiree collects benefits for 20 years, this amounts to a 3 percent cut in total benefits. If that sounds small, ask the "job creators" about the impact of a 3 percentage point increase in their tax rate.

Anyhow, a NYT editorial on the topic makes all the right points, including an obvious one, if the concern is making the indexation formula more accurate we can have the Bureau of Labor Statistics (BLS) construct a full cost of living index for the elderly. An experimental index that BLS already produces shows that the current cost of living adjustment is actually less than the rate of inflation seen by the elderly. There is a long way from this experimental index to a full elderly CPI, but given that we will index $10 trillion in Social Security benefits over the next decade, it might be worth going this route. 

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The NYT and others have reported on the death by suicide of Aaron Swartz at age 26. Aaron was a computer whiz who made major breakthroughs in software while still in his early teens. I knew Aaron because he e-mailed me with questions about some of my writings. After reading my book The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer, he asked me why we hadn't made it available in html. When I told him that no one on my staff had the time, he volunteered to do it himself. We continued to occasionally exchange e-mails and met in person a few times. He clearly was a serious committed person.

I have no special insight into the events surrounding his suicide. He had in the past had problems with depression, but there can be little doubt that he was very troubled by the prosecution hanging over his head. The Justice Department was pressing charges after he had been caught trying to download a huge number of academic articles through the M.I.T. computer system. The point was to make this work freely available to the public at large. While both M.I.T. and JSTOR, the system he was alleged to be hacking, asked to have the charges dropped, the Justice Department insisted on pressing the case, threatening Aaron with a lengthy prison sentence.

It is difficult not to be outraged by this part of the story. Here is an administration that could find nothing to prosecute at the Wall Street banks who enriched themselves by passing on hundreds of billions of dollars of fraudulent mortgages in mortgage backed securities and complex derivative instruments, but found the time and resources to prosecute a young man who wanted to make academic research freely available to the world.

It would be an appropriate tribute to Aaron if his death prompted a re-examination of copyright and patent laws. These laws are clearly acting as an impediment to innovation and progress. If economists had the allegiance to efficiency that they claim, and not just serving the rich and powerful, the profession would be devoting its energies to finding more modern mechanisms for promoting creative work and innovation.

Unfortunately most economists are comfortable with the status quo, regardless of how corrupt it might be. Let's hope that Aaron's tragic death can be an inspiration to revamping intellectual property and making a better world.  

 

 Addendum: typos fixed from earlier posting, thanks to Robert Salzberg.

 

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Dylan Matthews gets the award for the first news item on the new paper on wage inequality (still in draft form) from my former boss Larry Mishel, colleague John Schmitt, and friend Heidi Shierholz. Mishel, Schmitt, and Shierholz (MSS) take issue with the job polarization explanation of wage inequality, put forward most prominently by M.I.T. professor David Autor. Autor's claim is that the pattern of inequality we have seen over the last three decades can be explained in large part by a loss of middle class jobs, with gains in employment for occupations at both the top and bottom end of the wage distribution.

The MSS paper shows that the shifts in occupational shares don't fit the pattern for trends in inequality very well over the last three decades. They also show that most of the rise in inequality, especially in the last two decades, has been within occupations and not between them. (There are many other issues, it is a 60-page paper.)

I will just note a couple of points in Matthews write-up. He cites Autor as saying that much of the inequality within occupations could be attributable to technical change. This is of course true, but his occupational analysis has nothing to say on this issue. His analysis is designed to show that inequality is driven by changing demand for different occupations. Insofar as inequality is attributable to differences in the demand for workers within an occupation, his occupational shift theory can provide no insight.

The other point is one of motives. Matthews quotes Autor:

"Larry and people in that group hate technical change as an explanation of anything. My opinion about why they hate it that much is that it’s not amenable to policy, ...All these other things you can say, Congress can change this or that. You can’t say Congress could reshape the trajectory of technological change."

While Mishel has made it fairly clear that he considers the technical change argument to be an excuse for not addressing the real causes of inequality, it is possible to turn the question of motives around. The view that inequality is simply the result of technical change and there isn't much we can do about it has plenty of rich and powerful adherents.

For example, the Hamiltion Project, which is largely funded by former Treasury Secretary and Citigroup honcho Robert Rubin, has published many papers that advanced this theme, including this one by David Autor. This doesn't mean that Autor in any way altered his research or his writings to curry the favor of the Robert Rubin crowd, only that substantial incentives do exist to produce research that absolves policy of any responsibility for the upward redistribution that we have seen over the last three decades.

For this reason it is probably best for discussions of inequality to focus on the evidence. In principle we should be able to determine where the weight of the evidence lies. We will probably never know the true motives of the various individuals involved in the debate.  

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It seems not, since neither the NYT nor the Washington Post seemed to think that the $6.6 billion jump in the monthly trade deficit that Census Bureau reported on Friday was worth mentioning. Fans of arithmetic (a tiny minority among DC policy types) like to point out that a large trade deficit implies negative national savings. In other words, if we have a trade deficit then by definition the United States as a whole has a negative saving rate.

This means that we either must have budget deficits (negative public savings) or negative private savings, or both. There is no way around this fact. There is now a holy jihad in progress against the budget deficit in Washington, which means that all right thinking people don't want to our negative national savings to mean negative public saving.

The implication would then be that we want negative private saving. This could come through an investment boom, but only believers in Santa Claus think that investment is likely to expand much as a share of GDP. It is not easy to produce large increases in investment and we never have in the whole post-war period. So even though Serious People in Washington might talk about some huge uptick in investment, serious people don't believe it.

This means that the only way to balance a large trade deficit is with very low household savings, as we had during the years of the stock and housing bubbles when ephemeral wealth lead to a consumption boom. That sounds like a great idea, right?

So that's where the arithmetic gets you if we have a large trade deficit as the Census Bureau reported on Friday. The public should care about this and so should the newspapers that purport to inform us.

 

Addendum: More on Accounting Identities

In the comments and e-mails readers have asked me about accounting identities. The answer is yes, they are incredibly important. If you don't eat, drink and sleep these identities, then you do not understand the economy, end of story. Identities are by definition true, there is no way around them.

I have heard policy types tell me that they don't like accounting identities. That's fine, I may not be very happy that I will be one year older a year from now if I am still alive. Nonetheless, both are inescapably true. If you don't understand how the identities work, then you don't understand the economy. Here's a brief primer that may be helpful. You can find a discussion in every intro textbook as well.

If you find this too complicated or not worth your time, just remember, you do not understand how the economy works. Got it?

 

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It is incredibly annoying to see a serious paper tell readers that Germany's unemployment rate is 6.9 percent. This is the measure of the unemployment rate using the German government's methodology. This methodology treats people who are working part-time but would like full-time employment as being unemployed. That is not how they are treated in the U.S. data. They would simply be counted as employed.

This error is especially egregious because anyone can quickly find Germany's unemployment rate calculated with a methodology that is comparable to the U.S. methodology by going to the OECD's website. There one finds that Germany's unemployment rate in October (the most recent data available) was 5.4 percent.

There is no excuse for a news story to ever report the German government's measure of unemployment without explaining the difference in methodology. This badly misleads readers about the state of the German labor market.

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Morning Edition had a nice piece on the large and growing black market in prescription drugs as people increasing turn to sellers outside of the United States to buy drugs at prices that are   far lower than the patent protected prices in the United States. As the piece explains, the drugs purchased through these channels are of uneven quality. This is exactly how economic theory predicts people would respond to a government intervention that raises drug prices by many thousand percent above their free market price.

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That's what Catherine Rampell told readers in her Economix blogpost today. The piece comments:

"From an economic standpoint, it’s actually a bit surprising that Americans don’t see greater tensions between the generations. Medicare and other public spending on the elderly (such as public pensions at the state level) has been gobbling up an increasing share of government budgets, which crowds out spending on the young and raises their future tax burdens."

Americans probably recognize that the high cost of Medicare is primarily due to the high prices charged by drug companies, medical suppliers, and doctors. That would be a basis for class conflict, but not getting mad at their parents. They probably also understand that public pensions are part of the pay of public employees. This is not a generational issue, it's a question of the pay levels of public employees, which research shows to be comparable to the pay of private employees with comparable education levels.

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Michelle Rhee gained notoriety as the chancellor of DC's public schools under Adrian Fenty's administration from 2007 to 2011. Her conduct in this position was one of the main reasons he was not re-elected. Among other things, she publicly took pleasure in firing large numbers of teachers and administrators. Incredibly, she also claims not to have realized that high stake testing would provide incentives for teachers or administrators to cheat on the scoring of exams. 

Since she left the DC school system she started a new organization, StudentsFirst, which was created to push for the sort of changes to the school system she sought to implement as chancellor. The organization received considerable media attention for a report card it issued on the public school systems in the 50 states earlier this week. While most of the items on the report card were part of an educational agenda of questionable merit (see Diana Ravitch's blog for specific critiques), one item had nothing to do with education whatsoever.

Rhee's report card gave schools a failing grade if teachers received a defined benefit pension (worse if it was backloaded). The school system gets an "A" in this category if teachers only had a 401(k) type defined contribution plan or a cash balance account.

Pensions are now and have historically been an important part of teachers' compensations. Teachers, like most public sector employees, are paid less in wages than workers in the private sector with comparable education and experience. They make up much of this gap with a better benefit package, including better pension benefits, than workers in the private sector receive.

Given this reality, it is difficult to see how students are helped if a school system replaces a defined benefit pension that guarantees teachers a specific level of income after they retire, with a defined contribution plan, where retirement income will depend on the teachers' investment success and the timing of the market. Since state governments don't have to care about the timing of market swings, only overall averages, assuming timing and investment risk is an important benefit that governments can provide their workers at essential zero cost. A defined benefit pension will make a job more attractive to workers than if the state gave teachers the same amount of money in the form of a contribution to a 401(k) account.

In short, Rhee's report card means that states get credit for making their teachers more financially insecure without saving the government a penny. This position might coincide with a business agenda to eliminate defined benefit pensions, but it is very difficult to see how it will improve our children's education.

 

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It is customary not to say bad things about people when they die, but that is not a reason to construct an alternative reality, as the NYT appears to have done in its obituary for James Buchanan. The obituary tells readers:

"Dr. Buchanan partly blamed Keynesian economics for what he considered a decline in America’s fiscal discipline. John Maynard Keynes argued that budget deficits were not only unavoidable but in fiscal emergencies were even desirable as a means to increase spending, create jobs and cut unemployment. But that reasoning allowed politicians to rationalize deficits under many circumstances and over long periods, Dr. Buchanan contended.

"In a commentary in The New York Times in March 2011, Tyler Cowen, an economics professor at George Mason, said his colleague Dr. Buchanan had accurately forecast that deficit spending for short-term gains would evolve into 'a permanent disconnect' between government outlays and revenue.

"'We end up institutionalizing irresponsibility in the federal government, the largest and most central institution in our society,' Dr. Cowen wrote. 'As we fail to make progress on entitlement reform with each passing year, Professor Buchanan’s essentially moral critique of deficit spending looks more prophetic.'"

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This discussion turns the reality of U.S. budget deficits on its head. As can be seen, the debt to GDP ratio was consistently falling in the 35 years following World War II. This was the period when we seeing the indiscipline of Keynesian economics at its fullest bloom. As Richard Nixon famously remarked during his presidency, "we are all Keynesians now."

The debt to GDP ratio began to rise again in the Reagan era as a result of his tax cuts and military buildup. Ironically the piece tells us that the Reagan era was when Buchanan's agenda became "ascendant."  In the post-Reagan era the debt to GDP ratio again began to decline under President Clinton. It rose slightly under President Bush, who is not generally viewed as a Keynesian, and then exploded after the economic downturn caused by the collapse of the housing bubble. 

In short, if Buchanan's argument was that liberal demands for an ever expanding welfare state would lead to chronic deficits, history has shown him to be wrong. If the argument is that the desire for tax cuts and increased military spending, coupled with macroeconomic mismanagement, could lead to large deficits, there is a strong case.  

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I'm not kidding, he notes the sharp redistribution from labor to capital over the last four decades then tells readers;

"Although the stars are lined up in favor of the anti-corporate left, American business, when its back is to the wall, has historically proved to be extraordinarily resourceful."

Seriously, it's a thoughtful piece, but it's difficult to see the rising anti-business tide that Edsall discerns. From where I sit it looks like the country is controlled by two parties dominated by business interests. They both push policies that are likely to continue the upward redistribution of income, the main difference is that the Democrats think that the wealthy should pay their taxes.

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Good questions raised in this column by Eduardo Porter. We're number one by a large margin, but unfortunately it's in the category of costs. We're nowhere close in terms of outcomes.

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Thomas Friedman apparently believes that global warming and the government debt are problems of the same nature, with a looming crisis getting worse every day it is neglected. This is wrong for two obvious reasons.

First, Thomas Friedman apparently doesn't follow the news closely, but the budget deficit is getting more attention than anything else in the world. In fact, Congress and President Obama have already taken substantial steps to reduce the debt, in contrast to the incredibly limited action on global warming.

This raises the second point, Friedman apparently missed the economic collapse that gave us the large deficits of recent years. The country in fact had very modest deficits until the collapse of the housing bubble sank the economy. This sent tax collections plummeting and spending on items like unemployment insurance soaring. We also deliberately increased the deficit with the stimulus to support the economy since sufficient demand was not being generated by the private sector.

The deficit reduction that President Obama and Congress agreed to in 2011 is already slowing the economy and adding to unemployment. Those who want more deficit reduction now may not realize it, but they in fact want to throw people out of work and make our children's parents unemployed.

It is difficult to understand why this would be good policy or how it connects to reducing greenhouse gas emissions to save the planet. We don't save the economy by having a generation of children raised in families with parents who can't find decent jobs.

The long-term deficit problem is due to three things: health care, health care and health care. We currently spend more than twice as much per person on health care as other wealthy countries. This is projected to grow to three or four times as much in the decades ahead. If these growth projections prove accurate then health care costs will devastate the economy. If our health care costs were comparable to those in other countries we would be looking at long-term budget surpluses, not deficits. This is why serious people talk about controlling health care costs, not the projected budget deficits.

But Friedman is not the sort of person to let the evidence stand in the way of a good story. That is why he tries to tell us budget deficits are like global warming.

 

Addendum:

If we believe that the debt to GDP ratio can impose some magical curse on the economy, and ignore the fact that Japan's debt to GDP ratio is well more than twice the size of ours and does not appear to suffer from the curse, it is worth noting that there is an easy route to reducing the ratio. If interest rates rise, the price of long-term bonds will fall. This will allow us to quickly eliminate huge amounts of debt by buying back these long-term bonds at steep discounts. (See the discussion here.) This would be a pointless exercise since it doesn't change the interest burden at all, but it should make influential people who worship the debt to GDP ratios, like Friedman, very happy.

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David Brooks is very upset about the possibility that the cost of Medicare will prevent the United States from being as large a military force in the world in the future as it has been in the past. He tells readers:

"Medicare spending is set to nearly double over the next decade. This is the crucial element driving all federal spending over the next few decades and pushing federal debt to about 250 percent of G.D.P. in 30 years. ...

"So far, defense budgets have not been squeezed by the Medicare vice. But that is about to change. Oswald Spengler didn’t get much right, but he was certainly correct when he told European leaders that they could either be global military powers or pay for their welfare states, but they couldn’t do both."

Of course fans of arithmetic everywhere know that the basis for these projections is the assumption that per person health care costs, which are already more than twice the average for other wealthy countries, will increase to three or four times the cost in other countries. This means that our health care system will become ever more dysfunctional.

While that is of course possible, the problem is not the American people getting what they want, as Brooks asserts, it is the health care industry using its political power to extort incredible sums from the rest of us. If our health care costs were in line with costs in other countries, we would be looking at budget surpluses, not deficits.

In principle we should be able to reform our health care system to get its costs in line with those in other countries. However Brooks never even considers this possibility. (Actually, health care costs in recent years have come in way below projections, suggesting that we may already be on a slower growth path.) Alternatively, if our political system is too corrupt to allow reform we could allow Medicare beneficiaries to buy into the more efficient health care systems in other countries and split the savings with the government. However, Brooks is not interested in this option either.

Brooks would rather see people denied care under the argument that it is necessary to preserve the country's military standing in the world. In reality, we should make sure that we are not wasting trillions of dollars paying more than necessary for our health care. We should also decide what sort of military involvement we want the United States to have in the world. It may not be desirable to be intervening widely and fighting wars on different continents even if we can in fact afford the cost.

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That's what Gary King and Samir Soneji tell us in a NYT column this morning. The gist of the piece is that the authors have assessed trends in mortality rates from a variety of factors and concluded that the Social Security Administration is underestimating life expectancy. Therefore the program will cost more than is projected, meaning that the long-term funding gap is larger than projected.

Before dealing with the scary prospect of living longer let's first address some trivia. The piece tells readers:

"For the first time in more than a quarter-century, Social Security ran a deficit in 2010: It spent $49 billion dollars more in benefits than it received in revenues, and drew from its trust funds to cover the shortfall."

That's not exactly right. The program spent more than it received in payroll taxes, but Social Security also earned more than $117 billion in interest on the government bonds in the trust fund. This means that the program actually had an annual surplus and the trust fund grew in 2010.

But let's get to the crisis of living longer. Based on their projections of life expectancy, King and Soneji calculate that in 2031 Social Security will cost about 0.65 percentage points more than the trustees currently project measured as a share of taxable payroll. This comes to 0.25 percentage points measured as a share of GDP.

Should we be scared by this? Well, the amount is certainly not trivial, but the increase in defense spending associated with the wars in Iraq and Afghanistan came to 1.7 percent of GDP. So, we have dealt with much bigger expenses without too much disruption to the economy. So if King and Soneji's projections prove accurate, Social Security will not exactly be breaking the bank.

However there is a bit more to the story. They only dealt with the impact of improving health on life expectancy. There are other ways in which better health can be expected to affect the finances of the program. For example, the disability portion of the program currently accounts for almost 18 percent of the program's cost. If better health reduced disability rates then this could go a substantial portion of the way toward offsetting the higher costs associated with a longer period of retirement.

The second way in which better health could affect Social Security projections is by allowing people to work later into their life. A substantial portion of retirees are forced to retire due to poor health. If these people were in better health, many workers might put in more years of work before retirement, thereby improving the finances of the program by increasing tax collections.

Better health might also mean slower growth in health care costs. One drain on the Social Security system is the money paid to workers in the form of employer provided health insurance. This money, which has been a rapidly growing share of compensation, is not subject to the Social Security tax. If better health reduces the rate of growth of health care costs, a larger portion of compensation may be subject to the payroll tax, which would also improve the program's finances.

Finally, improved health would likely reduce the cost of other government programs like Medicare. This could means that we will be paying out more money in Social Security to retirees but paying less for their Medicare and Medicaid expenses.

All these effects may not be entirely a wash, meaning that our longer lives will mean more net expenditures from the government, but we would want to look at all these factors before we hit the panic button.  

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One of the major occupations for economists these days is blaming efforts to help poor people for the housing bubble and bust. The main villains in this story are Fannie Mae, Freddie Mac, the Federal Housing Authority (FHA) and the Community Reinvestment Act (CRA). A reader recently sent me another work in this proud tradition.

I just did a quick reading of the paper, but it seems that the smoking gun in this one is that banks subject to the CRA appeared to do more lending in CRA tracts in the periods where their lending behavior was being scrutinized by regulators. Just to remind folks, the CRA requires banks to make loans in the areas from which they were taking deposits, in particular focusing on areas that are disproportionately African American or Hispanic. The authors take this timing result, which is especially pronounced in the peak bubble years of 2004-2006, as evidence that the CRA played a major role in the pushing of bad loans on moderate income people. As they note, the loans issued in these tracts in these periods had a much higher default rate than other loans.

It's not clear that this gun is smoking quite as much the paper implies. First, it is important to remember that the biggest peddlers of subprime loans were mortgage lenders like Ameriquest and Countrywide. These lenders were for the most part not subject to the CRA since they were not banks (they raised money through the capital markets, not by taking deposits). Therefore the CRA was not a gun to the head of these lenders forcing them to make bad loans.

However even for the banks to whom the CRA did apply the evidence in this paper is less compelling than it may seem. Let's assume that banks do care about their CRA ratings for the reasons mentioned in the paper. (The CRA rating would likely be a factor that would come up when a bank was interested in a buyout or merger.) Let's also imagine that banks time their loans to CRA tracts so that they can show more loans in the periods where their compliance is being reviewed. Let's also hypothesize that in total the CRA doesn't get banks to make any more loans to CRA tracts than they would otherwise.

In this case, we would get exactly the sort of pattern of lending found in this study. Banks that are subject to the CRA would refrain from focusing on CRA tracts when they know no one is looking. Then when the light is on, they would make a stronger effort to make loans in the neighborhoods covered by the CRA. If banks engaged in this sort of timing of loans to CRA tracts, we would find that loans during CRA review periods were higher than in other times, even if there was no net increase in loans as a result of the CRA.

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The Washington Post rightly noted the increase of 30,000 jobs in the construction industry as one of the bright spots in the December jobs report. As the piece points out, construction was one of the largest sources of job loss in the downturn and presumably a substantial portion of the job growth in the recovery will also be construction.

However the link between construction employment and actual construction is not nearly as close as would be expected. Housing starts peaked at just under 2.1 million in 2005, just before the top of the bubble. By the beginning of 2007, starts had dropped by close to one-third to just 1.4 million at an annual rate. Yet construction employment had barely changed over this period. Similarly, since 2010 housing starts have increased by more than 20 percent, yet employment has been virtually flat.

 Residential specialty trade contractors

res-con2

Source: Bureau of Labor Statistics.

Residential building

res-con1

Source: Bureau of Labor Statistics.

This pattern can be explained by the fact that many of the workers in the residential construction sector are undocumented workers who are likely not showing up on employers' payrolls. This could explain why there was a large drop in housing starts as the bubble driven construction boom began to fade in 2006 and 2007, with no corresponding decline in employment. It would also explain why the uptick in housing starts the last two years has not led to any substantial increase in the number of construction jobs reported in the establishment survey. Essentially the data in the establishment survey are only giving us part of the employment picture in the residential construction sector.

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For some reason no one appears to be asking this obvious question in the context of Al Jazeera's purchase of the Current TV station. According to the news reports, Al Jazeera does not intend to keep much, if any, of Current TV's programming. That means it is willing to pay $500 million simply to be carried by the large cable providers. That implies that these providers have extraordinary market power. This should be raising lots of questions at the Federal Communications Commission.

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At a time where the most obvious conflict over resources has been the enormous upward redistribution to the top 1 percent, the Los Angeles Times is working to promote conflict based on age. A piece on the budget battle was centered around the claim that the Republicans base of support is disproportionately older people who depend on Social Security and Medicare whose interests are pitted against those of younger voters who support the Democrats:

"At its core, the debate over the size of government and how to pay for it pits the interests of the huge baby boom generation, now mostly in their 50s and 60s, against the needs of the even larger cohort in their teens and 20s. With limited government money to spend, how much should go to paying medical bills for retirees versus subsidizing college loans, job training and healthcare for young families with children?"

In fact, the government is not up against any resource limits as the markets keep trying to tell people by lending the government vast amounts of money at extremely low interest rates. If the economy were near full employment, then the deficit would be less than 2.0 percent of GDP, a level that can be sustained forever.

Over the longer term deficits are projected to be a problem, but this is because of the projected explosion in health care costs, not the aging of the population. If U.S. per person health care costs were comparable to those in any other wealthy country we would be looking at long-term budget surpluses, not deficits. This suggests that there is a conflict between the interests of the public at large and the health care providers (e.g. the drug, insurance and medical supply companies and high paid medical specialists), but not between generations.

Finally, it is important to note that the cuts that have been proposed for Social Security and Medicare, such as raising the normal retirement age or the age of eligibility for Medicare would primarily hit the young, not people currently receiving benefits from these programs. Polls have shown that seniors often support these programs because they want to ensure that their children and grandchildren get the same benefits that they enjoy, not out of a selfish impulse to protect what they have.

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