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).
Robert Samuelson pulled a Washington Post special, reporting that:
"Young buyers 'will be able to enter the housing market at bargain prices,' argues NAR [National Association of Realtors] economist Lawrence Yun. When home prices again rise, increases will parallel income gains, meaning that the relative burden of housing costs will remain roughly stable, Yun says."
Actually, home price increases do not "parallel income gains." They track the overall rate of inflation, as has been shown with a century of data compiled by Yale University Professor Robert Shiller.
Relying on the NAR for predictions on the housing market is the standard practice at the Washington Post. All through the build up of the housing bubble, its main source on the housing market was then NAR chief economist David Lereah, who was also the author of the 2006 best seller, Why the Real Estate Boom Will Not Bust and How You Can Profit From It.Add a comment
The NYT tells us that the states are competing with each other and Bermuda to attract shell insurance companies with weak regulation. The deal is that insurers will establish a legal entity in your state, which can then be taxed, if you don't make them hold much in reserve. (AIG is one of the beneficiaries of this type of deal.)
Haven't we seen this movie before?Add a comment
The NYT reported on the effort by congressional Democrats to take back $20 billion in tax breaks for the oil industry over the next decade. The article tells readers that this is an effort to reduce the budget deficit. It would have been helpful to point out that this amount comes to less than 0.3 percent of the deficit projected over this period.
These tax breaks are arguably an unwarranted subsidy to hugely profitable oil companies, however it is not plausible that they will have a notable effect on the deficit over the next decade. This fact should have been pointed out to readers, just as reporters should point out that Republican efforts to increase drilling cannot plausibly be expected to have a noticeable impact on gas prices.Add a comment
In his weekly column in the NYT, Gregory Mankiw gave a three question quiz for economists. His questions are:
1) How long will it take for the economy’s wounds to heal?
2) How long will inflation expectations remain anchored?
3) How long will the bond market trust the United States?
Let's start with questions 2 and 3, because these are easier.
The answer to question number 2 seems obvious -- as long as there is no inflation. Why should people expect inflation when they are not seeing any? There is no evidence of generalized cost pressure in the economy as all indexes of wages are showing the rate of wage growth remaining pretty much constant. Commodity prices did rise, but this was mostly just a return to pre-recession levels, and it is not clear that these prices are even sticking at their higher level. This question is sort of like asking in the middle of a drought in the desert, when will people expect rain? Presumably when they see clouds on the horizon and not until then.
The answer to question 3 largely follows the answer to question 2. After all, the real threat to those holding U.S. government bonds is inflation, not insolvency, unlike the euro zone countries that Mankiw refers to in his piece. The United States can always print more dollars to meet its obligations. Greece cannot do the same with euros.Add a comment
The Post once again showed why it is known as "Fox on 15th Street," running an editorial with the subhead, "tackling the specter of structural unemployment," which essentially offers nothing to address the problem.
The piece got off to a bad start early, telling readers:Add a comment
That is what the projections from the Congressional Budget Office (CBO) imply. And, just to be clear, this is the additional waste that CBO projects would result from running the program through private insurers. The figure does not include roughly $5 trillion in expenses that would be transferred from the government to insurers.
The $34 trillion figure comes to $110,000 for every man, woman, and child in the country. It is almost 7 times the projected Social Security shortfall. While the Post has devoted endless space (in both its news and opinion sections) hyping the need to fix Social Security, it has never once mentioned this much larger cost to the country projected by CBO. Instead its articles on the Republican Medicare plan have been entirely of the he said/she said variety and discussions of its political prospects.
A serious paper would discuss the substance. The Post's readers don't have more time to look into this issue than its reporters.Add a comment
Laura Tyson, the former chair of President Clinton's Council of Economic Advisers, had a column in the NYT today urging patience in addressing the over-valuation of the dollar relative to the Chinese yuan. The heading of the piece identifies Tyson only by her role as a professor at the Haas School of Business at the University of California at Berkeley and her former position in the Clinton administration.
The NYT's identification did not mention that Ms. Tyson is also currently a member of the board of directors of Morgan Stanley. She received almost $350,000 in compensation for her work in this position last year.
This is relevant to the piece because Morgan Stanley has extensive business dealings in China. It is likely that Morgan Stanley would benefit from having the dollar remain high against the Chinese yuan, since this means that its dollar assets will go further in China. In other words, the position being advocated by Ms. Tyson in this piece happens to coincide with the interests of the company on whose board she sits.
It is entirely possible that Ms. Tyson came to her views on the dollar and yuan without any consideration of its impact on Morgan Stanley. However, the NYT should have informed readers of this potential conflict of interest.
As far as the substance, her argument that there is little link between the value of the dollar against the yuan and the U.S. trade deficit with China is weak. When China raised the value of its currency against the dollar in 2005, many other nations followed suit. This led to a substantial decline in the U.S. trade deficit measured as a share of GDP. (The only relevant measure.) It matters little to workers in the United States whether the improvement in the deficit came in trade with China or other countries.
Also the plea for patience must be seen in a context in which tens of millions of workers are unemployed or underemployed with little hope for any improvement in sight. Deficit hawks in both political parties (including many of Ms. Tyson's former colleagues in the Clinton administration) have closed off the option of further fiscal stimulus. The current political context also seems to offer little hope for more expansionary monetary policy.
Given the options, an improvement in the trade balance seems the best hope for a more rapid increase in employment. It is understandable that those struggling to get by in a downturn that resulted from a combination of Wall Street greed and incompetent economic policy may not be as patient as Ms. Tyson.Add a comment
Reporters have full time jobs reporting the news. This means that they are supposed to have the time to learn about the issues on which they are reporting. This is in contrast to their audience who generally have full time jobs doing something else.
This means that reporting both sides of an issue does not mean writing "Joe said the X" and "Jane said not X." It means that reporters are supposed to take a few minutes to find out whether or not X is true, and then share this information with readers.
This issue comes up with regard to Republican plans to "drill here, drill now" in response to the recent run up in gas prices. The Republicans claim that if we just allowed the oil companies to drill everywhere they want, it would get the price of gas back down to an acceptable level. Environmentalists and some Democrats have argued that given the size of the world oil market, any additional drilling can only have a minimal impact on oil prices.
The NYT, WAPO, and NPR have all reported this one as a he said/she said leaving it to their audience to determine who is right. By contrast, the Huffington Post did a bit of homework. They talked to some experts in the field. These experts told their audience that even if we make very generous assumptions about the potential increase in domestic oil production it will take at least 5 years to notably increase output and that it would have minimal impact on gas prices.
This is the way a real news organization deals with issues.Add a comment
This is the question that readers of a Washington Post article on the administration's efforts to lower the value of the dollar should be asking. The article tells readers that the Obama administration and Federal Reserve Board Chairman Ben Bernanke probably both want a lower dollar to help correct the U.S. trade imbalance and create jobs, but that they can't say so openly for fear of upsetting financial markets.
Since the delay in lowering the dollar to a more sustainable level is causing millions of workers to be unemployed, it would be worth asking how many workers should be forced to suffer unemployment for long, just to keep the financial markets from being troubled. Economists believe that in the long-run financial markets respond to the fundamentals in the economy, so the worst that is likely to result from a bit of concern is a period of excessive volatility in the financial markets. This can lead to some traders losing or gaining large amounts of money; the long-term impact on the economy is likely to be trivial.
It is a very damning statement about the Fed and the administration if, as this article implies, they care so much about financial markets that they are forcing millions of workers to be out of work just to avoid a short period of uncertainty.Add a comment
The Wall Street Journal ran a piece about how manufacturers are finding it increasingly difficult to find the skilled workers that they need. The problem is that their current workforce is nearing retirement while relatively few younger workers have the necessary skills. The employers featured in the article even talk about how they have been raising wages to get and keep workers.
Of course the wages discussed in the article are not the sort that would sound high to most WSJ readers. According to the article, one of the manufacturers starts workers at full-time jobs paying between $25,000 and $50,000 a year. This is probably a somewhat lower wage than WSJ readers envision for their children.
More importantly, the charts accompanying the article do not show manufacturing wages rising rapidly. In fact, the chart actually shows that average nominal compensation in manufacturing has been flat or even declining slightly. This indicates that real hourly compensation has been falling over the last few years. This means that if the employers discussed in this article really are raising pay, then they are the exceptions. Most employers in the manufacturing sector are cutting pay in real terms, indicating that there is an excess supply of labor, not a shortage.Add a comment
In policy circles the worst thing you can do to a leading expert is to hold him/her accountable for their views. Remember all those folks who thought the economy and the housing market were just fine in 2006? They're all still there, using their expertise to opine on and guide economic policy. It is considered excessively cruel to point out that these experts somehow could not see the biggest downturn since the Great Depression until we were in the middle of it.
Anyhow, there is a subset of policy types who had been complaining about the rising price of oil and other commodities as evidence of runaway inflation. This in turn was usually attributed to the Fed's quantitative easing policy.
Now that these prices have fallen sharply, these experts presumably fear deflation. Hopefully we will be reading articles in coming days in which these experts insist on the need for more aggressive monetary policy in order to protect the economy against this threat.Add a comment
David Brooks told readers that:
"Over the past months, there has been some progress in getting Americans to accept the need for self-restraint."
This should have hundreds of millions asking who needs "self-restraint?" Does Brooks thinks that the 14 million unemployed need more self-restraint? Do the 8 million people who want full time work but who can only find part-time employment need self-restraint? Do the millions of people who are facing the loss of their home need more self-restraint?
Brooks isn't very clear on who he thinks needs to restrain themselves but he praises Senator Alan Simpson, Representative Paul Ryan and President Obama for helping to lecture us on this need. Those familiar with the basic economic data know that the richest 1 percent have used their control of the political process to hugely increase their share of national income over the last three decades. The bottom 90 percent has seen little gain from economic growth over this period. Of course Representative Ryan wants to give more tax breaks to the richest 1 percent, so he doesn't seem to be preaching self-restraint to those who have been showing the least in recent years.
If Brooks' concern is making the welfare state sustainable, then he should be talking about fixing the health care system. It is easy to show that if per person health care costs in the United States were comparable to any other wealthy country then we would be projecting huge budget surpluses, not deficits.
If Brooks bothered to take a few minutes to study the issues he writes about then he would know this. Fortunately for him, he has job for which this skill is not required.
Brooks also claims that there is an inherent tension between economic dynamism and economic security, telling readers:
"Republicans still mostly talk about incentives for growth, and Democrats still mostly talk about economic security."
Actually many Democrats have been actively talking about more stimulatory fiscal policy, monetary policy and currency policy (i.e. a lower valued dollar). All of these policies would boost growth. It is remarkable that Brooks is apparently unaware of the large number of Democrats, including several of his colleagues at the New York Times, who have been vigorously pushing these positions.Add a comment
Those who thought that the Washington Post (a.k.a. Fox on 15th Street) couldn't get any worse, have just been proven wrong yet again. The Post ran a little primer telling readers about Medicare, Medicaid, and Social Security.
The Post tells readers:
"a GAO report found that total government health-care spending in the United States is somewhere in the middle. In the United States, spending on public health was 6.9 percent of gross domestic product in 2005, while it was 8.9 percent in France, 8.2 percent in Germany and 7.2 percent in the United Kingdom. On the lower end of the spectrum, Australia spent 6.4 percent of GDP on health care and Canada spent 6.9 percent. Some of the countries that spend more have had a demographic shift to an older population sooner than the United States."
Okay, boys and girls, can anyone see the problem with this discussion?
That's right! All the other countries included in this discussion have public health care systems. The figures cited for public health care spending comprise the bulk of their national spending on health care. Only in the United States do we have a large private health care sector that spends roughly the same amount as the public sector.
This means that rather being in the middle of the pack, as this discussion implies, we are way over the top. To pay for most of the health care needs of our seniors and our poor, our government pays almost as much Germany, Canada, and the U.K. do to provide for the health care needs of their entire population.
Of course this point should have been central to this whole primer. The reason that Medicare, Medicaid, and Social Security are projected to "usurp much of the revenue from federal taxes," is that health care costs in the United States are out of control. If the U.S. paid the same amount per person for health care as any of these other countries it would be looking at huge budget surpluses in the long-term, not deficits.
There is one other especially striking item in this piece. It told readers:
"The last major change to Social Security happened in 1984, when President Ronald Reagan raised the Social Security tax rate (the percentage of income under the maximum taxable earnings limit that is subject to tax) and the full retirement age from 65 to 67."
Umm, the year was 1983, not 1984. This primer is not ready for prime time.Add a comment
Weekly unemployment claims jumped to 474,000 last week, an increase of 43,000 from the level reported the previous week. This is seriously bad news about the state of the labor market. It seems that the numbers were inflated by unusual factors, most importantly the addition of 25,000 spring break related layoffs in New York to the rolls due to a changing vacation pattern, however even after adjusting for such factors, claims would still be above 400,000 for the fourth consecutive week.
This puts weekly claims well above the 380,000 level that we had been seeing in February and March. This suggests that job growth is slowing from an already weak level. This is news that should be reported prominently.Add a comment
USA Today told readers that rents are now rising rapidly because of an improving job market. That should raise suspicions, since the job market is not really improving much.
If we check out the data from our friends at the Bureau of Labor Statistics (BLS), we don't see much of story. Here's the trend for owner's equivalent rent (OER). This is a measure of rent that looks at the implicit rental value of owner occupied homes. The BLS index for OER has risen by less than 1 percent over the last two years. There's not much of a story of rising rents here.
We get a little different picture if we go to the BLS index for rent proper which measures the increase in the price paid by people who are actually renting their home. This shows that rents have risen by 1.4 percent over the last two years, with most of the increase coming in the last year.
The likely reason for the difference is that the index for the rent paid on rental units includes utilities that are provided by landlords under the rent contract. Since the cost of heating and electricity have risen substantially in the last year, it is not surprising that a rental index including these utilities would rise more rapidly than one that does not.
Still, the 1.0-1.5 percent increase shown by the BLS index is far below the 4.0-5.0 percent increases reported in the article. There are 3 likely reasons for this difference. First, the BLS index is nationwide. USA Today has focused on a few cities that were likely selected because they had rapidly rising rents.
The second reason is that the indexes USA Today cites refer to open units on the market. In any given year only a fraction of rental units turn over. These units are likely to experience larger rent increases than units where the tenant does not change. Typically landlords are reluctant to raise rents on current tenants since they don't want to risk driving them out.
The third reason is that the USA Today indexes don't control for the mix of units. If the units coming on the market are disproportionately new units that have just been built then it is reasonable to believe that they are in better condition and have more amenities that the rental housing stock as a whole. This means that the index might be showing an increase simply because the units in it this year are better on average than the units that were in it last year.
These three factors likely explain the gap between the modest rate of rental inflation reported in the USA Today article and the very low inflation rate reported by BLS. In short, rents are likely very much under control, with much of any increase in market rents being attributable to higher utility costs.Add a comment
The Post apparently believes that its readers have more time and expertise to evaluate the claims of politicians than its reporters. How else can one explain the he said/she said piece on jobs programs that the Post ran today?
The article featured Democrats demanding new government programs to create jobs while the Republicans insisted that excessive regulation was the problem. If the latter were true it would be necessary to explain why excessive regulation did not prevent the economy from creating 3 million jobs a year from 1996 to 2000. A real newspaper would have devoted some space to evaluating the competing claims of the two parties.Add a comment
In one of his debates with President Carter in 1980, Ronald Reagan famously quipped that everyone who supported abortion has already been born. In the same vein, it is probably worth noting that everyone who works for the Washington Post has a job. This may explain its fixation with reducing the deficit while virtually ignoring the most prolonged period of high unemployment since the Great Depression.
A front page article told readers that:
"With voters growing increasingly anxious about the debt, Republicans and some Democrats are refusing to approve additional borrowing without an explicit strategy to reduce deficit spending."
Actually polls consistently show that jobs are far and away voters main concern. Furthermore, the most likely reason that voters might be "growing increasingly anxious about the debt" is that the media is constantly bombarding them with hysterical and often largely untrue pieces about the debt and its consequences.
This article refers to Representative Ryan's plan for privatizing Medicare. It would have been useful to note that the Congressional Budget Office analysis of this policy projects that it would add more than $34 trillion (almost 7 times the size of the projected Social Security shortfall) to the cost of buying Medicare equivalent policies over the program's 75-year planning horizon.Add a comment
Deficit reduction is all the craze now that it is official policy in Washington to ignore the downturn and the tens of millions unemployed and underemployed. (Hey, how many of these people have advanced degrees and went to Ivy League schools?)
Harvard economist and former AIG director Martin Feldstein made his contribution to the effort today in a column on tax reform in the NYT today. Feldstein wants us to "raise taxes, but not rates." His proposal is to limit deductions for tax expenditures to 2 percent of total income.
Feldstein tells readers:
"What’s the result? Taxpayers with incomes of $25,000 to $50,000 would pay about $1,000 more in taxes; those with incomes of more than $500,000 might pay $40,000 more."
Before anyone gets too excited over this former Reagan economist pushing progressive tax reform, it's worth considering this one a bit more closely. Let's put the average income in the $25k-50k group at $38,000. The promised $1,000 tax increase for these folks is about 2.6 percent of their income. The average income for people earning over $500,000 is around $1.7 million. The $40,000 Feldstein expects to get from this group comes to 2.3 percent of their income.
In other words, insofar as this tax reform proposal is progressive, it is very trivially progressive. Comparing the $40,000 additional tax take with the $500,000 bottom end cutoff may confuse people here. Given that more than 8 percentage points of GDP ($1.2 trillion annually) has been redistributed upward to the top 1.0 percent over the last three decades, we might hope to do a little better with our tax reform.
But wait, it gets worse. It is worth asking who would get nailed by Feldstein's proposed caps. Most people in that middle $25k to $50k group take the standard deduction. The most common deductions for this group are the mortgage interest deduction and the deduction for health care expenditures, including employer paid health care.
While there is a good argument for limiting the mortgage interest deduction (if someone wants a big home, why should the rest of us share the bill), if these people have a large deduction for health care expenses, it is likely because they have a serious illness in their family. Taxpayers with a large health care deduction are likely families with a chronically ill child or a severe medical condition, like cancer.
Of course, we can argue that there are better ways to pay for health care than through the tax code, but remember we're cutting back on government health care spending too. So don't anticipate that we fix any inequities created by Feldstein's tax reform on the expenditure side.
In short, what we have from Feldstein is exactly what we expect from those on the right: an effort to lift more money out of the pockets out of the middle class, the poor, and the sick to make the wealthy even wealthier.Add a comment
In the wake of their successful assault on Osama Bin Laden's hideout, ABC News did a short feature on the Navy Seals. The report tells us that the people who hold this highly demanding and dangerous get paid about $54,000 a yeat. It then adds that:
"The base salary level [of Navy Seals] is comparable to the average annual salary for teachers in the U.S., which was $55,350 for the 2009-2010 school year, according to the Digest of Education Statistics.'
That is one possible comparison. There are other possible reference points. For example, the CEOs of Goldman Sachs and J.P. Morgan both pocket around $20 million a year. This means that they make almost twice as much in a day as a Navy Seal earns in a year. Not many bank heads have to worry about getting shot in the line of duty.
Of course some Wall Street types do even better. Hedge fund manager John Paulson reportedly pocketed $5 billion last year. If we assume a 3000 hour work year (presumably he had to put in some overtime), Paulson had to work about 2 minutes to earn as much as a Navy Seal does in a year.Add a comment
This is what the Post was warning about in its article headlined, "The dollar, at risk: U.S. efforts to speed the economic recovery could transform currency's slow decline into a precipitous fall," although it is possible that no one at the paper knows the introductory economics that would allow them to make this connection.
Those who have been through an intro econ class know that the trade surplus is by definition equal to net national savings. This means that countries that have large trade deficits like the United States must by definition have negative net national savings.
The main determinant of the trade surplus (or deficit), given a level of GDP, is the value of the dollar. If the value of the dollar were to fall precipitously, which is presented here as a bad scenario, it would lead to a quick adjustment towards balanced trade through strong growth in net exports. Higher levels of net exports would boost the economy, leading to stronger private savings and a smaller budget deficit. So, the Washington Post headline is actually warning that if we are not careful, we will see stronger economic growth and a smaller budget deficit.
As a practical matter, the precipitous fall in the dollar warned about in the article is almost impossible for exactly this reason. The euro zone countries would not let the dollar fall to 2 dollars to a euro precisely because it would destroy Europe's export market in the United States and make U.S. goods hyper-competitive in Europe. The same is true of Canada, Japan, China and other U.S. trading partners. If the dollar were for some reason go into a free fall all of these countries would almost certainly actively intervene in currency markets (as China already does) to limit the decline. This should be obvious to anyone who has reflected on the situation for even a minute.
The article gets several other important points wrong. First, the fall in the dollar is only reversing the run-up in the dollar that began with Robert Rubin's stint as Treasury Secretary. Rubin's high dollar policy sent the country on the course of bubble driven growth of the late 90s and the 00s that led to record low private savings rate and in last few years, high budget deficits. The recent decline in the dollar is just reversing the Rubin run-up.
The other important fact that the Post got completely wrong was its assertion that:
"History is full of examples of countries where large budget deficits eventually led investors to lose faith, causing the currency to tumble. The Asian financial crisis, which rocked the likes of Thailand, Singapore and South Korea in the late 1990s, is one recent example."
According to the IMF, in the year prior to the East Asian financial crisis, Thailand had a budget surplus equal to 2.7 percent of GDP. Singapore and South Korea had surpluses equal to 14.4 percent of GDP and 2.6 percent of GDP, respectively. These countries clearly do not support the claim in this article that large budget deficits lead to declining currency values.Add a comment
In an article that discussed the federal government's policy on offshore oil leases the Washington Post told readers that:
"Democrats and environmentalists say that in a global marketplace, such moves [authorizing offshore drilling] have far less impact on prices than unrest in Libya and other geopolitical factors."
It is not just Democrats and environmentalists who say this. Anyone who understands markets say this. At most additional offshore drilling can add a few hundred thousand barrels a day to world oil supplies. By contrast, Libya produced about 1.8 million barrels a day before its civil war, Algeria produces 2.1 million barrels and Saudi Arabia produces 9.8 million.
Changes in production by these major producers will have far more impact on the price of gas than our decisions on drilling offshore. People who know economics say this regardless of whether or not they are Democrats or like the environment.Add a comment