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 Washington Post told readers that the credit rating agencies are threatening the United States with a downgrade if there is not a deal to reduce projected deficits in the near future. The article rightly pointed out that these credit rating agencies rated hundreds of billions of dollars' worth of subprime mortgage-backed securities as investment grade, although it attributes this inaccurate rate to misjudgment rather than deliberate corruption. Since the credit rating agencies received tens of millions of dollars for their ratings, and people within the organizations did raise questions about the mortgage-backed securities to which they were assigning investment-grade ratings, it is difficult to see how corruption can be ruled out as a possibility.

It also would have been worth mentioning that markets have not always responded to the downgrading by the rating agencies. In particular, Japan continues to be able to borrow in capital markets at extremely low interest rates (1.1 percent on 10-year bonds) in spite of having been downgraded by both major credit rating agencies.

Also, it would have been helpful if the Post had more clearly sourced the article. Specifically, the article tells readers:

"On Thursday night, S&P insisted that Washington must conclude an agreement to cut the deficit by $4 trillion or face the consequences of a potential downgrade."

The source of this threat is not clearly identified.

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Okay, the article by Michael Cooper didn't use exactly those words, but it did say that:

"Governors from around the country — including Christine O. Gregoire of Washington, a Democrat, and Scott Walker of Wisconsin, a Republican — said that employers in their states had been reluctant to hire new workers because of the uncertainty [over the debt ceiling]."

If there are employers who are seeing enough demand for labor that they would ordinarily be hiring new workers, but are not doing so because of uncertainty stemming from the debt ceiling, then we would expect that they are working their existing workforce additional hours. This one is easy to check.

Here's what average weekly hours looks like according to the Bureau of Labor Statistics.


Source: Bureau of Labor Statistics.


See the jump in hours due to the uncertainty? That's right, it's not there. This means Governors Gregoire and Walker and the rest either do not have a clue about what is going in the labor markets in their state or they are making things up. This is one that readers will have to judge for themselves.

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Who could blame him? After all, it is hard to get news in Washington, D.C. Yes, yet again someone has referred to a deficit commission report that does not exist. Krauthammer is referring to the report of the commission's co-chairs, Morgan Stanley director Erskine Bowles and former Wyoming senator Alan Simpson. The commission did not vote on this package by the President's deadline and the co-chairs report would not have gotten the necessary majority in any case. Therefore there is no commission report. This one shouldn't be hard, even for people who write columns for the Washington Post. Add a comment

Forgiveness is wonderful, but forgetfulness has no place in policy debates. The idea that the Moody's and Standard and Poors should be seen as impartial arbiters of the creditworthiness of the U.S. government, whose integrity and judgement is beyond question, does not pass the laugh test.

Their warnings over possible debt downgrades associated with delays in raising the debt ceiling may be made in good faith. Certainly the failure to raise the ceiling by August 2 would be very bad news for the creditworthiness of U.S. debt. But, their recent history suggests that any statement from these companies must be viewed with a bit of skepticism.

It is also worth noting that the markets have often not agreed with the rating agencies' assessments. Both have downgraded Japan's debt, yet the country can still sell 10-year bonds at interest rates of less than 1.5 percent.

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The NYT had an article on budget negotiations in which it implied a false symmetry on key issues in the debate:

"On Thursday, the leaders grappled with the most difficult issues politically for each party: cuts to Medicare and Medicaid, entitlement programs long defended by Democrats; and new revenues from the tax code, anathema to Republicans, who say they will not vote for anything resembling a tax increase."

This symmetry is misplaced because the Democrats' base actually wants to see the rich pay more in taxes. By contrast, the Republicans' base actually strongly supports Medicare and to a lesser extent Medicaid. The Democrats need the Republicans to get a tax increase passed through Congress. The Republicans need the Democrats to give them cover for cuts that are unpopular across the board.

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David Brooks appears to have made a remarkable leap forward today. He told readers, "the fiscal crisis is driven largely by health care costs."

Yes, after writing endless columns about out-of-control government spending and the wild liberals in the Democratic Party, someone apparently got David Brooks to look at the budget numbers. And, he saw what every budget wonk knows. While the current deficits are overwhelmingly the result of the devastation caused by the collapse of the housing bubble, the longer term shortfall is entirely the result of the projected rise in health care costs.

However, it seems that no one told Brooks that the problem is not that people in the United States are getting too much care, the problem is that we are paying too much for the care we get. The United States pays close to twice as much for its drugs, its doctors, its medical equipment as people in other wealthy countries. As a result, our per person health care costs are more than twice the average of other wealthy countries, even though they all enjoy longer life expectancies. If we paid the same amount per person for our health care as people in other wealthy countries, then we would be looking at long-term budget surpluses, not deficits.

This means that Brooks' discussion of our willingness to die when life loses its joys is beside the point. The choices around the end of life are important and difficult, but that is not our health care cost problem. Our health care cost problem is the cesspool corruption that we rely upon for our health care.

Brooks has made a huge step forward by recognizing that the fiscal problem is not one of government spending generally, but rather spending on health care. Now he has to make another huge step forward to recognize that our health care system is a money pit that is better at transferring money to providers than giving care to the public.

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In an opinion piece that appeared as a front page news story, the NYT told readers that the debt ceiling battle is "a war over government." The first sentence tells readers that:

"intense exchanges this week between the two parties have made it clear that this is not so much a negotiation over dollars and cents as a broader clash between the two parties over the size and role of government."

This is 100 percent the interpretation of the reporter/editor. This is the sort of piece that newspapers ordinarily put on the editorial pages.

While it is certainly possible that the two sides have different views of government, that is hardly clear from the available evidence. By all accounts, it was President Obama who put cuts to Social Security on the table, not the Republicans. And the polls consistently show that the vast majority of Republicans, like the vast majority of Democrats, are opposed to cuts in both Social Security and Medicare. It is not clear that this is really a source of divide between the two parties even if their leadership may go in somewhat different directions.

The most obvious difference between the two parties, which the Republicans have stated repeatedly, is that they don't want anyone, especially rich people, to pay higher taxes. In other words, the Republicans want rich people to have more money.

Given that this has been set as an explicit line in the sand by the Republicans, it is difficult to understand how the NYT can ignore their claim and instead tell readers that this is somehow a philosophical dispute about the size and role of government. It is especially hard to understand how it can do this in a "news" story.

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The Washington Post, which regularly uses both its editorial and news pages to push for budget cuts, has a front page article today that warns the United States could end up like Greece. The article includes a quote from University of Maryland economist Peter Morici, telling readers that:

"If Congress raises the debt ceiling without a long-term plan for reducing the federal deficit, he added, 'they’ll never solve the problem, and we’ll end up like Greece.'"

It would have been worth pointing out that the United States cannot end up like Greece because the United States, unlike Greece, has its own currency. Greece is like the state of Ohio. If it has a shortfall it has to borrow in financial markets. Ohio can appeal to the federal government for assistance, just as Greece can turn to the EU, the ECB, and the IMF, but both have to accept whatever terms these bodies impose as a condition for their support.

By contrast, the U.S. government is always free to buy up debt issued in its own currency through the Fed. In principle, this could lead to a problem of inflation, however the economy is very far from reaching this point with a vast amount of unemployed labor and under-utilized capacity.

Of course, the U.S. government also has no difficulty whatsoever borrowing in financial markets. It is currently able to sell long-term debt at interest rates just over 3 percent. This means that the people investing trillions of dollars in these markets do not share Mr. Morici's assessment of the fiscal situation of the U.S. government.

It would have been worth presenting the views of someone who could tell the difference between the United States and Greece in this article.

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Amazon is known throughout the world as one of the most innovative tax cheats anywhere. It makes its profit largely by allowing customers to avoid state sales taxes and sharing the savings. States are now taking steps to crack down on this scam, requiring Internet retailers with any ties to in-state businesses to start collecting taxes on their sales in the state. California took this route this month.

The NYT had an article highlighting Amazon's efforts to fight back to protect its loophole, which includes a plan to place an initiative on California's ballot. In laying out Amazon's argument, the piece includes an unanswered argument from Amazon, that the law places a huge burden on small Internet retailers by requiring them to collect taxes in hundreds of different jurisdictions.

The piece should have reminded readers that there are services that will handle the tax collection for smaller businesses for a modest fee. These services are comparable to the payroll companies that small businesses often rely upon to get tax and benefit payments handled correctly.

Amazon has a history of putting out absurd arguments to protect its tax loophole. It had previously argued that it lacked the technical competence to keep track of the different tax provisions in all the jurisdictions where it sold products. This argument was contradicted by the fact that retailers like Wal-Mart and Target seem to have relatively little problem getting tax collections mostly right. Presumably, the programmers at the these traditional brick and mortar retailers are not that much more competent than the crew at Amazon. 

Given Amazon's history, the NYT should not present its claims to readers without including a response.

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That's what readers of the NYT's box on "issues holding up debt ceiling agreement" would conclude. The box tells readers that:

"Officials have said that the program, which provides health care to people 65 and older, is not sustainable in its current form."

This is not true. There is no, as in zero, none, official document that says the program is not sustainable in its current form. There are official documents that show the program will need additional revenue at some point. The ACA passed by Congress last year reduced the projected shortfall in the program by more than 75 percent.

As it stands, the projected shortfall over the program's 75-year planning horizon is less than 0.4 percent of GDP. This is less than one quarter of the cost of the wars in Iraq and Afghanistan.

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Yes, the United States has officially been asking (demanding?, begging?) China to raise the value of its currency against the dollar. Yet, the media continually threaten the country with the story that China may sour on the U.S. and stop buying U.S. debt if we don't get our budget deficit down.

However, if China stopped buying U.S. debt it would lead to a rise of the yuan against the dollar. This is exactly what the Obama administration has ostensibly been asking them to do.

In other words, China has no leverage in this picture. Their implicit threat is to do exactly what we supposedly want them to do. So why is the media trying to scare us?

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Nicholas Kristof is mostly on the mark in his column this morning, but he does repeat the Clinton fiscal responsibility balanced the budget myth. This is not true.

An examination of the Congressional Budget Office's (CBO) projections from the 1990s shows that in 1996 CBO still projected a deficit of 2.7 percent of GDP for fiscal year 2000. Instead, we had a surplus of 2.4 percent of GDP, a shift of 5.1 percentage points of GDP (@$750 billion in today's economy).

This shift did not come about from tax increases or spending cuts. CBO estimates that the tax and spending changes between 1996 and 2000 added $10 billion to the year 2000 deficit. The shift was entirely attributable to faster than expected economic growth and especially the decision by Federal Reserve Board chairman to allow the unemployment rate to fall to 4.0 percent.

CBO had projected an unemployment rate of 6.0 percent for 2000. This was the conventional estimate of the NAIRU (non-accelerating inflation rate of unemployment) at the time. It was only because Greenspan ignored this nearly universally held view in the economics profession (and the Clinton appointees to the Fed) that the economy was able to grow enough to get the unemployment rate down to 4.0 percent and to bring the budget from deficit to surplus.

This is an important piece of history that is routinely buried.

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Glenn Kessler, the Post's Fact Checker, did a nice job trying to pin down the law on whether Social Security benefits can still be paid once we have hit the debt ceiling. This is a tough one because payment of benefits would draw down the trust fund, which is part of the $14.3 trillion debt, dollar for dollar. This means that they would not add to the debt and push the government over the ceiling. Still, it is not entirely clear that the payments would be kosher. Add a comment

That's what folks should be asking Jon Stewart. The United States as a country owes China money because it has a trade deficit. The trade deficit means that United States would be borrowing from China even if it had a balanced budget, as for example was the case in 1999 and 2000. The fact that China happens to hold a lot of Treasury bonds simply is the result of what U.S. assets they choose to hold. They could, and do, also buy private bonds, stock and other assets.

Of course the trade deficit is high due to the over-valued dollar. This in turn is partly the result of the fact that China and other countries have a policy of keeping the dollar high by buying up assets like U.S. Treasury bonds.

All of this may be way too much depth for a comedy show, but how about leaving China out of the story? We have a lot of China bashers in this country. There are reasons to object to many of China's policies (I certainly do), but do we need to throw China into the picture gratuitously? After all, John Boehner, Eric Cantor, and Barack Obama would seem to provide plenty of comedic material.

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We no longer have to wait to see how the battle over the debt ceiling will turn out, the Washington Post already told us:

"No matter what the outlines are for a final agreement to lift the debt ceiling, the deal will include cuts to some of the nation’s major entitlement programs: Medicare, Medicaid and Social Security."

There you have it, right there in the first sentence of a Washington Post article.

This piece also told readers in the context of a discussion of lowering the Social Security cost of living adjustment:

"experts have long argued that the formula [the current consumer price index] overstates inflation because it does not take into account changes in consumer behavior in response to rising prices."

While some experts have argued this point, other experts have noted that research from the Bureau of Labor Statistics (BLS) showing that consumption patterns among the elderly are substantially different from the consumption patterns of the rest of the population. These experts have suggested that if the concern is making the cost of living adjustment more accurate (as opposed to just cutting it), Congress could just instruct BLS to construct a cost of living index that was based on the consumption patterns of Social Security beneficiaries.

Such an index may show a rate of inflation that is higher or lower than the current index. It would be impossible to know for sure without first doing the research. However, there is no doubt that such an index would be more accurate than the current one for measuring changes in the cost of living of the elderly.

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The Commerce Department reported that the trade deficit jumped in May to $50.2 billion from $43.6 billion in April. The monthly data are erratic, but this is definitely bad news. This means that growth in the U.S. economy is likely to be very weak in the second quarter. (Measured in constant dollars, the deficit increased by $3.9 billion.) It does not look like trade is about to become a major driver of growth and jobs.

This is also bad news for fans of income accounting. If we have a trade deficit, then national savings must be negative. That means either or both negative private savings or negative public savings (e.g. budget deficits). That's the rules -- there is no way around this one.

But this one didn't get much attention in the media. I couldn't find the NYT piece on the deficit. The Post had a piece on the May trade numbers, but it worked hard to get us the good news:

"But rising imports aren’t necessarily bad, because they can indicate the overall direction of demand for goods and services. Some analysts see crude oil, which accounted for more than two-thirds of May’s increase in imports, as a positive read for the economy.

'It indicates demand is stronger,' said Linda Duessel, equity market strategist at Federated Investors in Pittsburgh. 'That’s a good thing here in the U.S.'"

Actually, most of the increase in oil imports came about as the result of higher oil prices, not the need for more oil to fuel the economy. While the volume of oil imports in May was down from its April level, it is more than 9 percent below the average for the first quarter of the year.

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It would have been worth reminding readers that the debt crisis in Italy and other euro zone countries is first and foremost a political crisis. The European Central Bank (ECB) can just print euros which can be used to address any potential default risk among its member countries. There would be little obvious economic downside to this policy since most European counties have large amounts of unemployment and excess capacity due to inadequate demand.

If there is a risk of default it is because the ECB has decided to make an obsession out of its 2 percent inflation target. This shows that numerology can be a very dangerous religion when it is held by central bankers.

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That seems to be Ruth Marcus's argument in her column today. The point is that he needs money for his education and infrastructure agenda, but he will only get this money if he commits to make large cuts, including in areas like education and infrastructure. Okay, no one expects the Washington Post to make much sense, but does anyone have any idea what she is talking about? Add a comment

Politicians sometimes say things that they don't believe. Reporters really should know this. That is why NPR seriously misinformed listeners when it told them that Republicans oppose regulations on incandescent light bulbs intended to reduce energy use because they believe it is an excess of big government.

This is their claimed motivation. They may be opposing this regulation for entirely different reasons. For example, they may not care at all about the future of the planet, they may have gotten campaign contributions from companies who will see their profits reduced by these regulations or they may just want to oppose anything that President Obama supports. However the main point is that NPR does not know the motives of these politicians and it should not imply that it does.

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Morning Edition spread a bit of nonsense this morning in a segment on innovation. It told listeners that firms are not investing much right now, which it attributed to uncertainty. It's not clear what metric it is using, but investment in equipment and software as a share of GDP is almost back to its pre-recession peak. Given that many sectors on the economy are still operating far below full capacity, this is a fairly high level of investment.


Source: Bureau of Economic Analysis.

The segment also included the unsupported assertion that Americans used to be the most innovative people in the world, but this is no longer true. It does not give its measure of innovation. The United States trailed most other wealthy countries in productivity growth in the years prior to 1995. Since then, productivity growth has been somewhat more rapid in the U.S. than in other countries, but this reverses the pattern identified in the story. Other countries have more small businesses and self-employed people relative to the size of their workforce, at least in part because they have national health insurance. (Entrepreneurs know that they will still have health care even if their business fails.) It is not clear what measure produces the pattern of innovation described in the segment.

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Let's imagine that Wall Street investment banker and long-time Social Security foe Peter Peterson had $1 billion in government bonds (also known as "IOUs"). Suppose that he decided to sell them. According to Glenn Kessler, the Washington Post's fact checker, this would create a burden for the U.S. government.

This sale of bonds would displace other bonds that the United States might want to sell in the financial market. This would lead to higher interest rates on U.S. debt. Therefore Mr. Peterson is contributing to our deficit problem.

That may seem more than a little silly to readers, which it is. Yet, this is the same way in which Kessler says that Social Security will be creating a fiscal burden. The program has bought $2.6 trillion in government bonds which are part of the $14.3 trillion debt subject to the debt ceiling. It will be relying on the interest from these bonds to pay for some benefits for the next decade, just as Mr. Peterson may use interest from government bonds that he holds to pay for his living expenses or funding his anti-Social Security agenda.

After 2022 the program will begin selling off its bonds. This will have the same effect on the market as if Mr. Peterson were selling his bonds. In Peterson's case he will directly sell his bond into the market, in the case of the Social Security program it will sell a bond to the government which will have to get the money by selling a new bond in the market (unless it raised taxes or cut spending to cover the price of the bonds).

Kessler also gets wrong the baseline for the projected longer-term shortfall for Social Security. After 2036 the program is projected to only have enough money to pay a bit less than 80 percent of scheduled benefits. However, if the law is never changed, then the program would only pay the benefits that could be financed through incoming Social Security tax revenue. The general fund would not be tapped to cover the shortfall.

Of course Congress could change the law, but budget debates usually start from the law as written, not as some individual might imagine it will be changed in the future. In this sense, it is 100 percent accurate to say that Social Security does not now nor will it in the future contribute to the deficit. Congress could change the law so at some point it does contribute to the deficit, but that is just a guessing game, not the current reality.

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