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).
If the Washington Post sent reporters through northern Japan they would note the wrecked roads and buildings, the large number of deaths, the crisis at the nuclear power plants, but they would never notice the earthquake/tsunami that caused it all. That is what one can assume from its continued failure to notice the housing bubble.
Anyone who followed trends in house prices should not have been at all surprised by the drop in prices reported for March (the "double-dip"). Nationwide house prices are still close to 10 percent above their long-term trend.
No one -- as in not a single economist anywhere -- has presented a remotely plausible reason as to why we should expect house prices to diverge from their 100-year long trend. Given the continued near-record vacancy rates, and huge inventory of homes in the foreclosure process, there is no reason to think that house prices will stop falling any time soon.
The Post should try to find at least one person who recognized the housing bubble (the largest asset bubble in the history of the world) for its articles on the housing market, instead of relying exclusively on people who were caught by surprise by its collapse.Add a comment
This is worth noting because the NYT is so anxious to tell readers what politicians actually believe about the deficit, Social Security, and other issues. It is much easier to accept that Pat Courtney was actually delighted about her daughter Kathy Hochul's election to Congress than that most politicians believe the things they say about government policy.
(Hat tip to Ben Ross.)Add a comment
The NYT had a front page article on the prospect that house prices will hit a new post-bubble low with the release of new data from the Case-Shiller index. (This refers to nominal house prices. Real house prices are down by about 4 percent from their low in 2009.) The article does not make any reference to the housing bubble.
At this point the bubble is mostly deflated, but real nationwide house prices still must fall back by about 10 percent to get back to their 100 year-long trend. It would have been worth mentioning this trend in this article.
The article also includes a misstatement by Douglas Yearley Jr., the CEO of the builder Toll Brothers. Yearley is quoted as saying, "no one ever renovated the kitchen or redid a room for the kids in a rental."
This is not true. In cities that give security of tenure to renters, meaning that it is difficult for landlords to kick them out, it is not uncommon for tenants to pay for major repairs/renovations to their units.Add a comment
No, I don't have any evidence for that assertion, but neither does David Brooks have any support for the assertion that today's graduating college seniors, "inherit a ruinous federal debt."
It's apparently a day for throwaway lines and I wanted to play too.Add a comment
In its top of the hour news segment (no link) Morning Edition told listeners that the unemployment rate in Germany had fallen to 7.0 percent. This is misleading. The 7.0 percent figure is the official German measure of unemployment. This measure counts part-time workers desiring full-time jobs as being unemployed.
By contrast, the OECD calculates a harmonized unemployment rate that uses a methodology that is comparable to the methodology used in the United States. By this measure, the Germany unemployment rate had already fallen to 6.3 percent by March.
News outlets should present the OECD harmonized measure to their audiences. If they use the German government measure, at the very least they should point out that it is not directly comparable to the U.S. rate.Add a comment
In response to my friend, Jared Bernstein, responding to Paul Krugman, let me point out that there was a real simple, non-bureaucratic way in which to allow underwater homeowners to stay in their home and get out from under their crushing mortgage burden.
If we just gave them the option of staying in their home paying the market rent, post foreclosure, it would immediately give them housing security and relieve them of the prospect of paying a crushing mortgage debt. This requires no taxpayer dollars, no government bureaucracy, nor moral harzard, and it would have given immediate relief. This was good enough for conservatives like Desmond Lachmon at the American Enterprise Institute and Andrew Samwick, but not for the folks in the Obama administration.
I can see why people who work for the banks opposed right to rent, but not why anyone else would.Add a comment
Bruce Ramsey, a columnist for the Seattle Times, apparently thinks it is really cute to call the U.S. government bonds held by Social Security "IOUs." That is the only possible explanation for using this unusual term for government bonds in a column that is completely incoherent.
Ramsey apparently thinks that he is giving his readers news by telling them that they don't have a constitutional right to Social Security. This is of course true, but people do not have a constitutional right to many things that they can reasonably depend on, such as drinkable water, roads they can walk and drive on, not having their income taxed at a 90 percent average rate.
Congress could change laws tomorrow and make it so that we no longer enjoy any of these items, the constitution will not prevent them. But most of us conduct our lives as though Congress will not take such steps, because any Congress that did take away any of these items would likely be voted out of office quickly. Similarly, any Congress that substantially reduced Social Security benefits would likely be looking for new jobs quickly also. So, there is no constitutional right to Social Security benefits; there is just the fact that in a democracy it will be very difficult for Congress to substantially reduce Social Security benefits, since almost everyone either depends on them or expects to depend on them in the future.
But the serious inconsistency problem arises when Ramsey talks about the government bonds held by the Social Security trust fund:
"If you or I had the bonds, we would be trillionaires. But Social Security is the government — and an organization's IOUs are not an asset to itself."
Okay, first off, under the law, Social Security is a distinct entity from the government. Mr. Ramsey may not like this fact, but that is the law. This means that the bonds held by Social Security are an asset to Social Security.
Congress can change the law, but as the law is written now, both the bonds and interest on the bonds are assets to Social Security. This means that under current law as long as the trust fund holds bonds, Social Security must pay full benefits. (If Mr. Ramsey knows any member of Congress who plans to vote to default on the bonds held by the trust fund he could do a great service to his readers by publishing their names. Their constituents would probably want to keep this information in mind at election time.)
The inconsistency in Ramsey's argument is that if we take his "Social Security is the government" line at face value then his article makes no sense.
Let's say Social Security is the government just like the Defense Department, the Education Department or the State Department. What does it mean to say that Social Security has a deficit? Does the Defense Department have a deficit?
If Social Security is just like any other part of the government then it makes no sense at all to discuss the program as running as a surplus as deficit. The government collects revenue though a variety of sources, including a payroll tax, and it has various expenses. If we take Ramsey's view of Social Security (ignoring current law) then claiming that Social Security has a deficit or faces a shortfall is nonsense.
Of course that is not the direction that Ramsey goes. He wants to cut benefits because current Social Security tax revenues are less than current benefits. However after he just told us that there is no link between these two -- Social Security is the government -- there is no reason anyone should care whether the payroll taxes designated for Social Security are bigger or smaller than the benefits paid out.
Essentially what Ramsey wants is to say that Social Security is the government when taxes exceed benefits, so the money cannot be banked for future benefits -- but Social Security is not the government when benefits exceed taxes -- so then he can say that benefits have to be cut.
It's dishonest, but hey, it's not like Social Security can sue him for libel.Add a comment
Alright, they only did the first, telling readers:
"Several [Republican House freshmen] said they had been frustrated with town-hall meetings. That’s been especially true after the House passed a Republican budget that would alter Medicare — shifting seniors to private insurance plans, subsidized by the government, beginning in 2022."
This paragraph is part of an article that puts the Medicare debate in a he said/she said context: Democrats say that the Republicans will end Medicare, Republicans say they just want to change it.
That would be appropriate language for a gossip column but not for a newspaper. The reality is that the Republican plan ends what everyone thinks of as Medicare, a program through which the government provides insurance for seniors.
Instead, it will hand people a check that the Congressional Budget Office (CBO) projects will be grossly inadequate to buy care. The CBO projections show that the Republican plan would increase the cost to seniors of buying Medicare equivalent policies by $39 trillion. Of this additional cost only $5 trillion is savings to the government. The remaining $34 trillion is higher costs to seniors in the form of additional payments to insurers and providers.
The article also erred by not correcting a Republican assertion that their plan would not hurt people already receiving Medicare. Their proposal repeals the Obama health care plan which would have closed the donut hole in the Medicare prescription drug benefit.
This sort of article undoubtedly leaves many readers looking forward to the day when the Post is altered.Add a comment
The answer seems to be "yes." After all, the NYT told readers that,
"The companies estimate that the boom [from new oil drilling] will create more than two million new jobs, directly or indirectly, and bring tens of billions of dollars to the states where the fields are located, which include traditional oil sites like Texas and Oklahoma, industrial stalwarts like Ohio and Michigan and even farm states like Kansas."
The way that increased oil supplies lead to more jobs is by bringing down the price of oil. The article suggests that if environmental issues are ignored, the new drilling could increase U.S. output by approximately 1 million barrels a day. This would be an increase in world supply of roughly 1 percent. Given standard estimates of the elasticity of supply and demand for oil, this would be expected to lower world oil prices by around 2.5 percent.
A 2.5 percent decline in the price of oil could be expected to generate about 40,000-50,000 additional jobs, less than 1/20th of the low-end job estimate given by the oil industry. It is not surprising that the oil industry would make up ridiculous numbers about the economic benefits of its drilling if it can expect them to be reported without comment by major news outletsAdd a comment
When a powerful politician makes a serious error in discussing public policy it is known as a "gaffe." It is the sort of thing that reporters are supposed to call to the public's attention, pressing the politician to explain if he/she really doesn't understand the issue on which they were speaking.
This leaves readers wondering why the Congressional Quarterly (no link) didn't call attention to Senate Minority Leader Mitch McConnell's obvious error when it quoted him saying:
"Last week, the Social Security trustees issued a report saying Social Security and Medicare are not sustainable under their current structure."
Of course the trustees did not say that "Social Security and Medicare are not sustainable under their current structure," they said:
"Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing."
This is a crucial distinction. McConnell's statement implies that the trustees said that the programs had to be changed in some fundamental way. The trustees statement in fact means that at some point that the programs will either need more revenue or that benefits have to be cut.
This would be like driving from Chicago to Detroit and determining that at some point you will need more gas to complete the trip. That would mean stopping at a gas station and refilling your tank. By contrast, McConnell's comment implies that the car is about to breakdown and will not make the trip.
CQ should have called attention to McConnell's misrepresentation of the trustees report and pressed the Senator to determine whether he really does not understand the trustees statement or whether he is deliberately misrepresenting it for political purposes.
Hat tip to Paul Van de Water.Add a comment
New York Times columnist Joe Nocera told the Democrats that they should take Paul Ryan's plan to privatize Medicare seriously because the country will need something like this to restrain costs. In fact, the assessment of the Congressional Budget Office was 180 degrees at odds with this view. It projections showed that the Ryan plan would increase the cost of buying Medicare equivalent policies by $34 trillion over the program's 75-year planning period.
Nocera also asserted the need for means-testing Medicare. Unless his intention is to sharply reduce benefits for people earning in the neighborhood of $60,000 a year, this route offers small savings.
The United States already pays more than twice as much per person for its health care as the average for other wealthy countries. This gap is projected to grow in the decades ahead. If the United States got its health care costs more in line with the rest of the world or allowed free trade in health care, then there would be little problem with paying for Medicare.Add a comment
Yesterday the Labor Department reported that weekly unemployment claims were 424,000. This was the 7th consecutive week that they were above 400,000. This pace is inconsistent with healthy job growth suggesting that the May jobs numbers are likely to be very weak, with the unemployment rate likely rising further.
NYT columnist David Leonhardt noted this weakness, along with other news suggesting an inadequate rate of growth. It seems no one else is paying attention. I suppose that they are busy dealing with end of the world predictions and nonsense scare stories on the deficit.Add a comment
The headline of the Washington Post article told readers:
"Obama, GOP Turn to Job Growth."
Actually, both plans described in this article would have almost no effect on job growth as almost any economist would have told reporters. This is a cynical effort to pretend to be concerned about job growth by politicians who are not prepared to take any of the steps that actually could lead to more rapid growth.
Reporters are supposed to expose these public relations charades, not act as conduits. That is what the politicians' communications staff are supposed to do.Add a comment
It's amazing what you can learn reading the Washington Post. Today it's lead editorial told readers that reducing the annual cost of living adjustment for Social Security by 0.3 percentage points won't hurt. This would come as news to most seniors who rely on Social Security for most of their income.
This 0.3 percentage point cut is cumulative. After a person has been retired for 10 years benefits would be roughly 3 percent lower than would otherwise be the case. Benefits would be almost 6 percent lower after 20 years, and almost 9 percent lower after 30 years, when most beneficiaries will be in their 90s.
The poverty rate is highest for the oldest seniors, most of whom are women living alone. Most people think cutting benefits for this group by 9 percent would hurt, thankfully we have the Washington Post to tell us otherwise.
(This is a newspaper that has run front page stories warning that raising taxes by less than 1 percent [of income] on people earning $300,000 a year would inflict real pain.)
The rationale for the benefit cut is the use of an alternative measure of inflation, the chained consumer price index, that assumes substantial substitution between consumption items in response to prices changes. The Post asserts that this index is a more accurate measure of inflation.
Actually, the Bureau of Labor Statistics has an experimental elderly index that measures the rate of change in the basket of goods and services consumed by people over age 62. This index shows that the inflation rate experienced by the elderly increases by an average of 0.3 percentage points more than the overall CPI to which Social Security benefits are indexed.
While this is an experimental index that does not track the actual purchasing patterns of the elderly (e.g. examining the specific retail outlets where they shop and the items they purchase), those who are interested in an accurate cost of living adjustment would advocate a fuller elderly index. Those who want to cut Social Security benefits advocate using the chained consumer price index, which we know will show a lower measured rate of inflation.Add a comment
That's what Marketplace radio told listeners this morning in reference to to Japan. It explained Japan's deflation this way:
"The underlying problem in Japan is that the country is getting older. More and more people are retiring so there's downward pressure on wages."
Let's see, retiring workers reduce supply, therefore wages fall. Hmmm, lower supply therefore lower wages. What are we missing here?
Actually, the larger point of this story, that the inflation caused by higher prices for energy and other unusual costs last month, was a good thing for Japan, also doesn't make sense. Japan will benefit from a situation in which there are broad based wage and price increases that erode the real value of debt and reduce real interest rates. Having the price of a small subset of goods rise (especially imported goods like oil) is bad news since it erodes workers' purchasing power.Add a comment
It's pretty brave of the NYT to routinely feature a columnist who is completely out of touch with reality. David Brooks has another tirade today in which he lays out his, "Medicare Survival Guide."
Brooks is very upset that the Democrats won the special congressional election in New York by telling people that the Republicans want to end Medicare. Apparently, Mr. Brooks has not read the Medicare plan that was put forward by Representative Ryan and approved by the House with the support of all but 4 Republicans. This plan replaced the current Medicare system with a voucher, which seniors would use to buy health care insurance. That certainly sounds like ending Medicare. It would be interesting to know what Mr. Brooks would consider ending Medicare.
According to the Congressional Budget Office's assessment of the Ryan plan, it would increase the cost of buying Medicare equivalent policies by $34 trillion (5 times the projected Social Security shortfall) over the program's 75-year planning horizon. Adding in the $5 trillion in costs shifted from the government, the Ryan plan would increase the cost to beneficiaries of buying Medicare equivalent policies by $39 trillion.
In pushing the defense plan against Martian attacks Ryan tells the Republicans:
"They need to lay out the facts showing that Medicare is unstable and on a path to collapse, as Representative Paul Ryan is doing."
Actually, this is not what the facts show. The projections in the Medicare Trustees report, as well as the CBO baseline budget, show that the program faces a relatively modest long-term shortfall. The amount of money needed to balance the program over its 75-year planning horizon is less than 0.3 percent of GDP, approximately one-fifth of the increase in the rate annual defense spending between 2000 and 2011.
There are important issues as to whether the assumptions underlying these projections will prove accurate, importantly limiting the increase in doctors' compensation under Medicare. However, this is a question of whether Congress will adhere to the current law, not a need to change the law.
The Brooks piece also contains the wonderful line:
"Many Democrats don’t want to go down in history as the people who did nothing while bankruptcy loomed."
Actually, they already will go down in history that way. Apparently no one told Brooks about the economic downturn. (He has probably been too busy preparing the defense against Martians.)
The Democrats, like their Republican counterparts, completely ignored the run-up in the housing bubble. The collapse of this bubble is likely to cost the country more than $5 trillion in lost output. It is also the reason for the large deficits that concern Brooks so much. Unless the Democrats can ensure that people like Brooks write the story, they are destined to go down in history as people who did nothing while economic disaster (I have no idea what Brooks means by "bankruptcy" and most likely he doesn't either) loomed.
Add a comment
The Wall Street Journal tells us that:
"Republicans argue that Mr. Obama and the Democrats have no plan to rescue Medicare, despite estimates that it will be unable to pay out full benefits beginning in 2024."
It then gives us the Democrats' response, making it a he said/she said. It would have been helpful to inform readers about the projected gap in Medicare funding so that readers know what it would mean to "rescue" Medicare from a shortfall that it is first expected to face 13 years in the future.
The Medicare Trustees put the projected shortfall at 0.79 percent of payroll, which is approximately 0.27 percent of GDP over the program's 75-year planning horizon. By comparison, the increase in annual spending on the military between 2000 and 2011 was more than 1.6 percentage points of GDP. This increase in spending did not cause serious harm to the economy, therefore increased spending of one-fifth this size will presumably not be a major problem.Add a comment
The Congressional Budget Office actually projects that the deficit is on a downward path, but the NYT still felt the need to tell readers that the deficit is "ballooning" in an article on the agenda for an upcoming meeting of G-8 leaders. The article also felt the need to describe the deficit as "giant."
These comments reflect the reporters or editors political views. They do not inform readers about facts in the world.Add a comment
In an article reporting on how the Republicans are backing away from the Ryan plan for privatizing Medicare. the NYT quoted former President Bill Clinton on the need to cut Medicare spending. Mr. Clinton was speaking a daylong conference of the deficit sponsored by Wall Street investment banker Peter Peterson.
It would have been worth reminding readers that Clinton is a big proponent of cuts to Social Security. At the deficit conference that Peterson sponsored last year, Clinton boasted that he had wanted to cut Social Security but congressional leaders from both parties blocked him. The cuts that he wanted would have reduced benefits by approximately 1 percent a year. This means that retirees in their 70s, 80s, or 90s, would be getting almost 15 percent less in Social Security benefits today, if President Clinton had gotten his way.
His desire to cut Social Security puts Clinton far outside the mainstream in the Democratic Party. In fact, it puts him far to the right of the majority of the Republican Party. It would have been appropriate to remind readers of this fact so they could put Mr. Clinton's interest in cutting Medicare in context.Add a comment
The news media keeps trying to tell us not to worry about who gets the money, the issue is one of philosophy. The WSJ picks up the task today telling readers that the difference between conservative and liberal budget plans:
"The big takeaway is this: The debate over how to reduce the deficit is truly a philosophical one about the size of government."
Is that so? The Congressional Budget Office tells us that it will cost $34 trillion (5 times the size of the projected Social Security shortfall) more to provide Medicare equivalent policies through private insurers than through the traditional government Medicare program. This would be additional money paid by taxpayers and beneficiaries to insurers and providers. Is the desire to hand this money over to these groups a question of philosophy?Add a comment
Nearly all economics reporters missed the housing bubble on the way up. They still seem determined to ignore it even after its collapse wrecked the economy.
The Wall Street Journal has a piece that emphasizes the effect that foreclosures are having on house prices. While foreclosures are lowering house prices, the more fundamental issue is that we have enormous excess supply. The country still has near record housing vacancy rates, although the level is down slightly from the peaks hit in 2009-2010.
This extraordinary vacancy rate puts downward pressure on house prices, since it means that there is excess supply of housing. (Those who took intro econ might recall the concepts of "supply" and "demand.") One of the predictable results of excess supply and falling prices is a rise in foreclosures, since falling house prices will put many people underwater in their mortgage. As a result of having zero equity, it is harder for people to pay their mortgage (they can't borrow against equity) and they have less reason to do so.
Anyhow, the key part of this story is the excess supply which was the result of the massive overbuilding of the last decade. It is reasonable to expect that prices will have to fall at least back to their pre-bubble level (@10 percent more) in order to bring the market back into balance.Add a comment