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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Close, but not quite; citing no evidence whatsoever, an AP article on plans to impose a financial speculation tax told readers that:

"though the tax could dent growth and employment, it has won a fair degree of support across the 17-country eurozone, including France and Germany, the EU's two biggest economies."

This should have caused readers to scratch their heads and some people at AP to get fired.

Okay, we know that rich and powerful people don't like the idea of taxing financial speculation. A serious news article would just tell us that rich and powerful people don't like taxing financial speculation, it would not just make things up about the tax slowing growth and job creation as this piece does.

The reality is that the tax rates being discussed would just raise the cost of financial transactions back to where they were in the 80s or even the 90s. Perhaps AP's reporters/editors don't have any knowledge of these decades, but we had plenty of growth and job creation back then. If the lower transactions costs of the last 15-20 years have helped growth it would be hard to find evidence for this in the data.

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It's nice to see Ruth Marcus use some simple common sense in her Post column today. She criticizes the flap over the $16 breakfast muffin (which turns out not to be true). She then points to other big flaps over very little money.

The points are well-taken. Many budget battles are over trivial portions of the budget. (John McCain made a $1 million appropriation [0.00003 percent of federal spending] a centerpiece of his 2008 presidential campaign.) It would be great if the Post would use its news pages to educate the public about where the real spending takes place, for example by routinely expressing spending and tax items as shares of the budget. It would also be useful if it started pointing out the fact that the long-term deficit problem is entirely the result of our broken health care system.

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Actually, USA Today didn't put it in quite these terms, and readers of its piece on raising airport fees probably missed it, but that is the clear implication of one of the statements in the piece. The piece told readers that:

"The security fees that passengers pay now cover about 43% of its costs of providing security in the air."

If this is accurate, then opponents of raising the fees believe that average taxpayers should subsidize the travel of frequent flyers and especially users of corporate jets, who pay very low fees.

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The NYT had a good piece on the wave of world-wide protests driven by economic policy today. This piece contrasts with a piece last weekend which clearly had the purpose of making the protests against Wall Street look foolish. Reporters would have little problem finding ill-informed inarticulate people at any of the protests mentioned in today's piece. However, these people would not be representative of the protest and their views would not explain the cause of the actions. Add a comment

Jonah Gelbach takes me to task for not reading David Brooks column carefully enough. Had I done so, I would have noted this part about President Obama’s latest jobs plan:

“Look at the recent Obama stimulus proposal. You may like it or not, but it’s trivial. It’s simply not significant enough to make a difference, given the size of the global mess.”

After telling us that stimulus does not work, Brooks is now telling us that Obama’s plan is too small to make a difference. [The latest jobs bill actually would provide more stimulus in 2012 than the original stimulus did for either 2009 or 2010.]

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David Brooks is really upset, we may have a lost decade because he is sitting there being right, standing in the middle, and the two extremes who control public debate won't agree with him. How do we know Brooks is right? Well, he is in the middle between the two extremes he just told you about, how could he not be right?

How do we know that the liberals/progressives are wrong? Brooks tells us:

"Many Democrats are predisposed to want more government spending. So they pick up on the one current they think can be cured with more government spending: low consumer demand. Increase government spending and that will pump up consumer spending.

When President Obama’s stimulus package produced insufficient results, they didn’t concede that maybe there are other factors at play, which mitigated the effects. They just called for more government spending. To a man in love with his hammer, every problem requires a nail."

 

Yeah, don't we just hate these Democrats? They are in love with their hammer (government spending) and therefore make everything look like a nail.

Suppose Brooks ever took 10 minutes to read the Obama administration's projections for the stimulus. (It's on the web and can be downloaded for free, so a NYT columnist should have access to it.) The first item in the summary of  Romer-Bernstein report would tell Brooks that:

"A package in the range that the President-Elect has discussed would create between 3-4 million jobs by the end of 2010." 

Let look at that one again:

"A package in the range that the President-Elect has discussed would create between 3-4 million jobs by the end of 2010."

Okay, 3-4 million jobs from a "package in the range that the President-Elect has discussed."

How many jobs did the economy need? By April of 2009, when the first stimulus payments were going out the door, the economy had already lost more than 6.5 million jobs. If we add in normal job growth that we would have seen in a healthy economy, we were already down by more than 8.0 million jobs.

And the economy was still losing jobs at the rate of more than 400,000 jobs a month. By July, we down by almost 10 million jobs from what would have been expected if the economy had sustained a normal pace of job growth from the start of the recession. This is what Brooks would know if ever bothered to look at the numbers.

Now let's look at that quote one more time:

"A package in the range that the President-Elect has discussed would create between 3-4 million jobs by the end of 2010."

President Obama proposed a stimulus package of about $800 billion. He got a package of around $700 billion. (We have to pull out $80 billion for the Alternative Minimum Tax fix. No one, I mean no one, thinks that this fix, which is done every year, had anything to do with stimulus.)

Furthermore, the package was more heavily tilted toward tax cuts than the package that President Obama proposed. Tax cuts have less impact per dollar than spending. David Brooks could find this fact in the Romer-Bernstein paper as well. The appendix tells us that a tax cut equal to 1 percent of GDP will eventually increase GDP by 0.99 percent. By contrast, government spending equal to 1 percent of GDP will increase GDP by 1.57 percent of GDP.

If President Obama got a package that was smaller than what he requested and more tilted towards tax cuts than what he expected, then the impact on growth and jobs would be less than what he expected. He expected that the package he rquested would create 3-4 million jobs, the package he got would be expected to create something less than 3-4 million jobs. And, we know that the economy needed somewhere in the neighborhood of 10 million jobs.

So how is anything about stimulus disproved because a stimulus that could have been expected to create maybe 3 million jobs was not adequate in a downturn where we needed 10 million jobs? There are no tricks here, this is all arithmetic and it is all right there in black and white.

But, Brooks does not want to be bothered by arithmetic. He wants his readers to support his plans for tax reform, for cutting Social Security and Medicare. In other words he wants his readers' support for doing all the the things that David Brooks always wanted to do, but he now says that we absolutely have to do because of an economic crisis caused by the incompetence of the people who always wanted to do these things.

And the people who insist on sticking to arithmetic -- who point out now and said at the time that the stimulus was not large enough -- well to a man in love with his hammer, every problem requires a nail. If arithmetic is nails, Brooks has no hammer.

 

 

 

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Cokie Roberts told listeners that the political deadlock between President Obama and Congress is slowing the economy [sorry, no link yet]. It is far from clear that this is the case. Consumption as a share of disposable income is actually higher than its post-war average. Investment in equipment and software is nearly back to its pre-recession share of output, which is striking given the large amount of excess capacity in most sectors of the economy. It is not clear what component of GDP that Roberts thinks would be higher without the deadlock. Add a comment

Robert Samuelson has a piece today arguing that China's intervention is necessary to save the world economy. He of course is right in arguing that China has enough economic strength to save the euro and prevent a downward spiral that would throw the world economy back into recession, as some of us have argued

However, the fact that China may have to play this role is due to the failings of the political leadership in both Europe and the United States. It is essential to remember that this is a crisis of a lack of demand, not supply. For this reason, it is ungodly stupid that so many people are being made to suffer from unemployment and declining living standards.

We know how to get out of this mess, we have known how for 70 years. We just need the government to generate demand. That means spending money. Ideally it would spend money on useful things like education, health care, and infrastructure, but even if it spent money in wasteful ways it would still create jobs and put people to work.

In the 30s we got much of the way back to full employment with the Works Progress Administration and other programs. Much of what was done was useful -- look around, you won't have to go far to find infrastructure built by depression-era programs. However, it took the massive spending associated with World War II to get the economy back to full employment. There is no magic associated with war that makes military spending more effective in creating jobs. The only difference was that the threat to the nation from the Axis powers removed the political obstacles to the necessary spending. 

The same situation applies today. We just need to spend money. That applies to both the United States and the euro zone countries. The problem is that we have more people in political leadership positions who want to be morality cops and lecture about balancing budgets rather than focus on policies that will restore economic growth. This includes the top officials at the European Central Bank, many of the voting members of the Federal Reserve Board's Open Market Committee and much of the political leadership in the euro zone countries, the United Kingdom and of course here.

The reason why the world might need China to come to the rescue is that our economic policy is being designed by people who prefer to impose their warped sense of morality rather than pursue serious economic policy. The real humiliation of turning to China is not that we actually need China, it's that our political leaders are prevented us from saving ourselves.

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The NYT used its news section to mock critics of Wall Street. It presented the comments of some of the people protesting Wall Street. While the people quoted in this article do appear to be confused about the role of the financial industry in the economy, the paper would have no difficulty finding articulate critics of the financial industry.

For example, it could present the views of Nobel prize winning economist Joe Stiglitz. Or, it could present the views of Nobel prize winning economist, and NYT columnist, Paul Krugman. Or could interview Simon Johnson, a former chief economist at the International Monetary Fund.

It is not clear what news the NYT conveyed to its readers by presenting the views of people who do not appear to be knowledgeable about the economy. This would be comparable to presenting the opinions of some of the more extreme people at a Tea Party rally as representative of the business community's arguments for lower taxes. This has not been done in the NYT or elsewhere.

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Thomas Friedman made another pitch for a "Grand Bargain" in his column today. (This phrase does indeed appear in capital letters in Friedman's column.) The grand bargain involves cuts to Medicare and Social Security (which appear only as "entitlements" in Friedman's column) in exchange for stimulus.

There is no doubt that the economy needs more stimulus. The economy is losing close to $100 billion a month in lost output as a result of the collapse of the housing bubble. Furthermore, the longer this downturn persists the more people will see their lives ruined. Families are breaking up, houses are being lost and the long-term unemployed may lose the opportunity to ever work again. (All of this could have been prevented if people who are paid to opine on the economy, like Friedman, had been capable of seeing an $8 trillion housing bubble.)

However, it is not clear why there should be any cuts in Medicare and Social Security as a quid pro quo. The cohorts nearing retirement, who would almost certainly be prime victims of Friedman's Grand Bargain, have seen most of their wealth disappear as a result of the collapse of the housing bubble. Why does it make sense to hit them again with cuts to Medicare and Social Security?

It might make more sense to hit Wall Street with a financial speculation tax, which could raise more than $1.5 trillion over the next decade. It might also make more sense to reduce payments to the pharmaceutical industry for drugs purchased through Medicare. This could easily save more than $300 billion over the next decade.

In fact, serious people would be focused on reducing health care costs more generally. We spend more than twice as much per person for our health care as people in Canada, Germany and other wealthy countries with nothing obvious to show for this in terms of outcomes. If we paid the same amount per person for our health care as Canada or Germany, it would save the government close to $6 trillion over the next decade.

People more familiar with economics might be pointing to the possibility of raising large amounts of revenue by taxing financial speculation. They might also focus on fixing our private health care system so that it does not threaten to bankrupt the country. But, Friedman would rather take away Medicare and Social Security for retired workers.

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An article on Russia's economy reported on a speech by Russian Prime Minister Vladimir Putin:

"He talked about 'bitter pills' of economic retrenchment. He said wages had outstripped productivity, threatening inflation."

It then added a parenthetical sentence:

"That’s largely because of government policies."

This is a sharp departure from the practice in reporting on U.S. and European economic problems. For example, when reporting on speeches or actions by Federal Reserve Board Chairman Ben Bernanke to counteract the downturn, the Post never points out that the inaction by Mr. Bernanke and other member of the Fed board to stem the growth of the housing bubble is primarily responsible for the downturn.

The same is the case with comments or action by European Central Bank president Jean-Claude Trichet. The Post never points out that his single-minded obsession with a 2.0 percent inflation target, while ignoring the growth of enormous housing bubbles in Ireland, Spain and elsewhere in the euro zone, is responsible for the euro-zone's economic and financial problems.

The Post also never tells readers that all the deficit hawks who it features prominently in both its news and opinion pages were obsessing on the deficit in 2005-2007, even when budget deficits were relatively modest. Their deficit obsession helped to crowd out any public discussion of the housing bubble. The collapse of the bubble both crashed the economy and sent deficits soaring. Yet, the post never includes a parenthetical comment along with quotes from Alice Rivlin, Erskine Bowles or any other prominent deficit hawk pointing out that the current deficits are largely the result of the deficit hawks' dominance of public debate in the pre-crisis period.

In short, it is interesting that the Post felt the need to tell readers that Mr. Putin is largely responsible for the problem that he is complaining about. It does not generally follow this practice.

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The NYT reports on evidence that China's economy is slowing, which it suggests is bad news for the world economy, since China has been a main engine of world growth in the last 2 years. The slowdown that China is experiencing is being deliberately engineered by its central bank as a way to combat inflation.

While the article implies that the slowdown makes it less likely that China would raise the value of its currency, which would increase its imports from the rest of the world and reduce its exports, a rise in the value of the yuan would be an obvious way to achieve the desired slowdown. In other words, as an alternative to the measures taken by China's central bank to reduce lending, the bank could simply raise the value of its currency against the dollar and other major currencies. This route would also have the advantage of directly reducing the inflation rate by making the goods China imports from the rest of the world cheaper.

There are reasons that may opt not to go this route, most obviously that the export-oriented industries may have more political power than the industries that will suffer as a result of the central bank's measures to reduce lending, however it is worth pointing out that these are alternative mechanisms for slowing the economy. If China does not raise the value of the yuan, it is not because its economy is slowing, it is because it has opted to take an alternative route for slowing its economy.

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President Obama wants to raise the tax rate on the wealthy back to the levels of the Clinton years, still leaving them 10 percentage points lower than the rates set in President Reagan's tax cuts. Charles Krauthammer confronts the threat.

Krauthammer warns of "a $1.5 trillion tsunami of tax hikes." (The tsunami is equal to approximately 0.7 percent of projected GDP or less than half of the Iraq-Afghan war induced increase in military spending.)

He then tells us that Obama's tax plans make him "today’s soak-the-rich, veto-threatening, self-proclaimed class warrior." Krauthammer goes on to call President Obama "a leveler, a committed social democrat, a staunch believer in the redistributionist state."

Along the way he also calls President Obama's adoption of the 1990s Heritage Foundation health care plan "the quasi-nationalization of one-sixth of the economy that is health care" and also denounces a stimulus package that was roughly the same size as the Bush tax cuts as "the largest Keynesian stimulus in recorded history." (I guess Bush didn't think of his tax cuts as "Keynesian.")

Pretty strong stuff here, imagine what Krauthammer would be calling Obama if he proposed to return to Reagan's 50 percent top marginal tax rate.


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The Post discussed the turmoil in financial markets yesterday. It told readers that

"Crude oil fell more than 7 percent, to about $80 a barrel, its lowest price in four weeks."

It then went on to say:

"Market observers attributed part of the fall in raw-material prices to investors rushing into dollars. The dollar index moved to a seven-month high after the Federal Reserve announced its decision to buy up $400 billion in long-term debt. Commodities such as crude oil are priced in dollars, so as the currency rises, oil becomes more expensive for holders of other currencies."

This makes no sense. It doesn't matter at all to other countries what currency oil is priced in. As it just reported, oil prices measured in dollar terms fell. This was due to the fact that the value of the dollar rose against other currencies. This means that higher dollar was offset by lower oil prices, meaning that the price of oil would be little changed for most other countries.

The fact that oil is priced in dollars is irrelevant. The situation would be the same for both the United States and other countries if oil were priced in corn. (There is an issue of oil that is purchased under long-term contract. The cost of this oil, if it is denominated in dollars [it may not be, people write any contract they want] would rise to third countries when the dollar rises in value.)

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The NYT told readers that former President Bill Clinton is planning to write a book giving the country advice on how to improve the economy. At one point the article cites the material from the publisher:

"In the book, according to a statement from Knopf, Mr. Clinton says that the United States has lost its commitment to fiscal responsibility, shared prosperity and balanced growth."

Remarkably, the article does not point out that President Clinton endorsed the high dollar policy that led to the large trade deficits of the last decade. This trade deficit created the gap in demand that was filled by the demand generated by the housing bubble.

This is like the captain of the Titanic giving lectures on safe ocean travel. [Here is a brief discussion of national income accounting for those who need to be reminded why Clinton's high dollar policy set the economy on a course for disaster.]

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The NYT ran a Reuters column in its business section that told readers that China lacked the ability to support the world economy. The piece essentially argued that China will act in its own interest, not the interest of floundering economies in the United States and Europe.

This piece ignores the actions that China is already taking. China's government has bought more than $1 trillion in U.S. government debt to keep up the value of the dollar, in order to sustain its export markets in the United States.It is virtually certain to lose money on these bonds because the dollar will inevitably fall when China stops buying up vast amounts of dollar assets.

This means that China already spends huge amounts of money to sustain its export markets. Switching to purchases of euro zone debt or guarantees of this debt would simply mean redistributing some of the money that China spends to support its export markets, it would not be a change of policy.

On a per dollar basis, China's purchases and guarantees of euro zone debt would almost certainly have far more impact on sustaining its exports than the marginal purchase of U.S. government debt. A collapse of the euro would almost certainly lead to a double-dip recession not only in Europe, but also the United States. This means that if China were to continue its policy of using its currency purchases to support its exports, it should be shifting from supporting dollar to supporting the euro.

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The NYT referred to the trade agreements negotiated with South Korea, Panama, and Colombia as "free-trade" agreements. This is inaccurate. They increase many forms of protectionism, most importantly by increasing the extent of patent and copyright protection in U.S. trading partners.

The Obama administration and Congress are strongly opposed to free trade in intellectual output. The NYT should not misrepresent their views on such an important economic issue.

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In an article on the recent instability in financial markets and the weak world economy, the NYT turned to "a senior World Bank official" for extensive comments about the world economy. The official's comments included no inside information, nor were they qualitatively different from the views expressed by many other economists who would have no problem being on the record.

Many economists have extremely bad track records in assessing the state of the economy, including many officials at the World Bank. For this reason it would be helpful for readers to know the names of the economists whose views are being presented so they know the credibility that should be attached to them.

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The Post reported that most House Democrats opposed a continuing resolution to keep the government running because it included cuts of $1.5 billion to partially offset an appropriation of $3.65 billion for disaster relief. It would have been worth telling readers that $3.65 billion is approximately 0.1 percent of the budget, whereas the $1.5 billion in cuts is equal to 0.04 percent of spending. Many readers would not know how large these sums are in total federal spending or relative to the deficit. Add a comment

The NYT noted that Germany's unemployment rate is just 6.2 percent and told readers:

"One reason is a series of policies that loosened job protections and put more pressure on unemployed people to find work."

That might be one reason, although most research shows that these measures have a limited impact on unemployment. The more obvious explanation for Germany's low unemployment rate is its policy of work sharing. This policy encourages firms to reduce work hours rather than lay off workers. The result has been that Germany has met its reduced demand for labor primarily by shortening work hours.

The context for this comment was an assertion that Greece will have to take comparable measures to force people to find work. The prospect of work sharing in Greece and other countries facing demands for austerity might look like an attractive alternative to maintain employment during the downturn.

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A segment on Morning Edition noted that 3 members of the Fed's Open Market Committee (FOMC) opposed the plan to shift from shorter term debt to holding longer term bonds in an effort to drive down interest rates. It would have been worth mentioning that all 3 of the no votes came from the district bank presidents. The bank presidents are essentially appointed by the banks in the district.

The 5 bank presidents who are voting members of the FOMC split 3-2 against this measure. By contrast, the 5 Fed governors who were appointed through the political process (by both Presidents Bush and Obama) voted 5-0 in support further action.

This is a striking split between the FOMC members who essentially represent banks and the members who were appointed by democratically elected officials. It would have been worth mentioning this fact in this story. (The NYT and the Post committed the same sin.)

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