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 once again shows why it is known as "Fox on 15th Street." It begins an article on the government shutdown in Minnesota:

"There is a giant gap between what many of the world’s governments have promised and what they can afford. Now, the headlines from the across the United States and overseas show what happens when the clunky machinery of democracy goes about trying to close that gap.

"The latest: The Minnesota government shut down Friday, locking families out of state parks on a normally busy holiday weekend after the Democratic governor and Republican-controlled legislature failed to reach agreement on whether to close a projected $5 billion budget deficit in part with tax increases."

As folks who looked at the graph in the last piece know, this bit of editorializing has nothing to do with the Minnesota budget crisis. It is just one more instance where the Post shoved its editorial position about budget problems right into the middle of a news story.

On the larger point about "many of the world's governments" the Post is also misleading. A main source of the budget problems facing governments at all levels is the economic collapse caused by the bursting of housing bubbles in the U.S., Ireland, Spain and elsewhere. (The folks at Fox on 15th have not been told yet about the housing bubble. They still rely on the chief economist at the National Association of Realtors as their main expert on the housing market.) 

If the world economy was operating at normal levels of output, most countries would have manageable budget deficits. In the case of the United States, the long-term budget deficit is the result of its broken health care system. If we paid the same amount per person for our health care as other wealthy countries, the long-term budget projections would show a surplus, not a deficit.

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It is irresponsible to run a story with a statement from one politician saying it is sunny and warm in Alaska and another saying that actually the temperature is below zero and it's snowing. There are real conditions in Alaska that the reporter should know and be able to tell readers. This information will let readers know that one politician is being largely truthful, while one is not. Reporters who have a job reporting the news have the time to find out about the actual weather conditions in Alaska. Readers generally do not.

By this same standard, the NYT printed a horribly irresponsible piece on the shutdown of Minnesota's government. This article included a quote from the Republican House Speaker, Kurt Zellers:

“We’re talking about runaway spending that we can’t afford,... And we will not saddle our children and grandchildren with mounds of debts with promises for funding levels that will not be there in the future.”

While the article also includes a quote from the Democratic governor, it provides no information that would allow readers to assess the truth of the claim that spending is out of control. In fact, state and local government spending in Minnesota has not been rising relative to its GDP over the last decade. (Sorry, I couldn't quickly find state spending broken out separately.)

MN_Spend.php

Source: USgovernmentspending.com.

As the chart clearly shows, there is no upward trend in spending relative to state GDP since the early 90s and in fact current spending levels are somewhat lower than two decades ago. This means that Mr. Zellers was not being truthful. A good news story would have conveyed this information to readers.

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It's always fun to read the Post's editorials on economic issues, since you never know what you might find. For example, it recently told readers that reducing the annual cost of living adjustment for Social Security beneficiaries by 0.3 percentage points annually (i.e. 3 percent after 10 years, 6 percent after 20 years, and 9 percent after 30 years) "won't hurt."

Today we get the Post's assessment of the Fed's QE2 policy. It praises the policy for preventing deflation, which it says was a risk at the time the Fed started the program. Actually, it is hard to see how deflation was a serious risk in the fall of 2010 or much impact of QE2. The core inflation rate has been pretty constant over this period, running in the range of 1.0 to 1.5 percent, with nominal wage growth running close to 1.6 percent.

The Post also makes a common mistake in viewing deflation as some sort of grave economic threat. There are good reasons for wanting a higher inflation rate (e.g. 3-4 percent) as economists across the political spectrum have argued. Most importantly it would reduce the real interest rate at a point where the nominal interest is already stuck at its zero lower bound.

In this context, a lower inflation rate is worse than a higher one, but crossing zero holds no special magic. In other words, it is bad news if the rate of inflation falls from 0.5 percent to -0.5 percent, but there is no reason to believe that this decline in the inflation rate is any worse than the drop from 1.5 percent to 0.5 percent.

The Post may be thinking about the sort of rapid deflation that was seen at the start of the Great Depression, when prices were dropping at near double-digit rates. That kind of deflation makes any sort of economic planning almost impossible, but there was little risk that economy would see rates of deflation go that high.

The other oddity in the Post's piece is that it blames QE2 for the run-up in commodity prices:

"But the negative consequences of QE2 — all of them also foreseeable — have canceled out some of the positives. Perhaps the most important of these was a commodity price boom, caused by the fact that many investors used the Fed’s freshly printed money to speculate on grain or oil. The winnings accrued to a wealthy few, while the U.S. middle class coped with higher prices for groceries and gasoline."

There are two big problems with this story. First, much of the recent run-up in commodity prices is likely to be enduring, driven by rapid growth in China and elsewhere in the developing world. I don't know anyone betting on a return to $40 a barrel of oil.

However the other part is even more bizarre. Speculators did not need QE2 to speculate. The Post's editorial writers are probably too young to remember, but back in 2008, before the collapse of Lehman, most commodity prices were even higher than their recent peaks. The Fed was in a tightening phase at that point. Given that we saw a much larger speculative bubble just three years ago, when the Fed still had relatively tight monetary policy, why would anyone think that the current bubble was primarily due to the Fed's actions?

Oh well, that's why it is always fun to read the Post's editorials on economic issues. 

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Marketplace radio had an interview with Larry Summers, formerly the head of President Obama's National Economic Council. At one point the interviewer questioned Summers about whether he viewed the size of the stimulus as too small. Summers responded that while he felt the economy needed a bigger stimulus, he thought the stimulus was the biggest package that it was possible to get through Congress at the time.

It would have been appropriate to ask, if Summers held this view, why neither he nor President Obama made such a statement after the stimulus passed. If they knew that the stimulus was too small then it meant that the recovery would be weak and that unemployment would remain higher than necessary.

In such circumstances, it would have been reasonable for President Obama to take credit for passing a big stimulus, which was an important step for getting the economy back on track, but that it would likely be necessary for further measures.

Instead, President Obama quickly began touting the "green shoots of recovery" and focused on reducing the deficit. This has created a political environment in which further discussion of stimulus has become almost impossible politically.

This pattern of behavior is completely inconsistent with what Summers claims was his view of the state of the economy at the time. This would indicate that either President Obama ignored the head of his National Economic Council or that Summers is not accurately describing the advice he gave to Obama at the time.

 

 

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The New York Times ran a piece on two court decisions that states were not obligated to maintain cost of living adjustments in pensions. It would have been appropriate to provide more background to these rulings.

In effect the courts were saying that contracts with workers do not have the same standing as other contracts. It is almost inconceivable that the courts would allow a state government to unilaterally cut its contracted payments to a supplier or other government contractor.

The media have often (wrongly) asserted that differing positions on various issues reflect distinct views of government. This arguably is such a case. On the one hand, there are people who believe that the government should re-write rules to protect the interests on the wealthy, on the other hand there are people who believe that the government should act to benefit the vast majority of the population. 

At one point the article asserts that:

"Ever since the stock market crash of 2008 wiped out many people’s retirement savings, officials have had a hard time persuading taxpayers of the virtues of covering the cost of inflation-adjusted pensions, which typical taxpayers no longer get themselves."

If officials have spent a lot of time, "persuading taxpayers of the virtues of covering the cost of inflation-adjusted pensions," it has not received much coverage in the media. The most obvious basis for the case would simply be that this is a contractual obligation to the states' workers. It would be interesting to see polling data on the issue of whether states should meet such contractual obligations.

It is worth noting that government officials have openly pushed the sanctity of contracts in other contexts. For example, when he was head of President Obama's National Economic Council Larry Summers argued for the importance of the sanctity of contract in the context of the bonuses going to AIG executives. Many of the top executives of the company, which was saved from bankruptcy by a massive government bailout, had bonuses that ran into the billions of dollars.

It is likely that the vast majority of the public did not support giving bonuses to these executives. (Bankruptcy voids contracts.) However, these bonuses were paid.

The article also includes the inaccurate assertion that:

"Social Security benefits are adjusted for inflation, but the adjustments can go both up and down."

This is not true. There is no provision for lowering benefits.

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USA Today told readers that:

"economists say it could be several years before the nation's housing market recovers."

This is probably referring to the views of economists who did not see the housing bubble. Economists who saw the housing bubble know that house prices are still about 10 percent above their trend level. This means that they do not expect the housing market to recover in terms of prices rising back to prior levels. They expect further price declines until the market returns to trend levels and then subsequent increases in step with the overall rate of inflation.

It would be helpful to readers if USA Today did not rely exclusively on economists who managed to overlook one of the largest asset bubbles in the history of the world.

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The system of patent-supported research gives drug companies like Genentech enormous incentive to mislead the public and government agencies, like the FDA, about the effectiveness of their drugs. Companies can lose billions of dollars if the FDA determines that a drug is not safe or effective and removes it from the market.

Therefore economic theory predicts that companies will make misleading claims to try to prevent removal. If the government did not grant patent monopolies that allow companies to sell drugs at prices far above the free market level, this incentive would not exist.

This fact should have been noted in reporting on the FDA's decision to stop authorizing the use of Avastian as a treatment for breast cancer. 

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The Washington Post should have made this point in an article that noted that Greece is likely to face further problems in meeting its debt obligations. If Greece ultimately has to restructure (i.e. partially default) on its debt, then it means that the new money being put in by the IMF and the EU is effectively allowing current debtors to be repaid. The public lenders will then be the victims of the partial default. Rather than being loans to the Greece, these loans are effectively a transfer from the taxpayers who support these institutions to Greece's creditors. The article should have made this obvious point. Add a comment

That would seem to be the implication of his quote in an NYT article:

“The American people know tax hikes destroy jobs ... They also know Washington has been on a spending binge for many years, and they will only tolerate a debt-limit increase if we stop it.”

Actually, the economy was creating 3 million jobs a year in the late 90s, when the higher Clinton-era tax rates were in effect. This means that unless the memory of the American people is as bad as Mr. Boehner's memory, they could not know that "tax hikes destroy jobs," since it is not true. (It is impossible to know something that is not true.)

This error would seem to qualify as a "gaffe," like when then-Senator Obama referred to voters in Pennsylvania being bitter and clinging to guns and religion in response to bad economic times. It would have been appropriate for the NYT to press Mr. Boehner on whether he is really ignorant of the economy's job growth record in the 90s or whether he is deliberately saying things that he knows not to be true.

The "spending binge" presumably refers to the increases in spending that began when President Bush took office. (Spending as a share of GDP rose substantially during the Bush presidency. [Corrected - thanks Tom.]) Most of the increase in spending was on the military. If the Republicans were to support reversing this increase in military spending then they would likely enjoy wide bi-partisan support.

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The NYT reported the results of a telephone survey which found that 41 percent of respondents thought a 401(k) or IRA was a better long-term investment vehicle than investing in stock. It's not clear what question people thought they were answering. The vast majority of people who invest in stock do it through a retirement account. Therefore, it's not clear what it would mean to say that investing in a 401(k) or IRA is better than investing in stock. Add a comment

Doctors in the United States have enormous political power. They use it to limit the supply of doctors domestically both by restricting medical school enrollment and the number of foreign doctors who can enter the country. As a result of these protectionist measures, the United States pays more than twice as much for its doctors as other wealthy countries, costing it more than $90 billion a year.

The NYT reported on the successful effort by the doctors' lobby to stop the use of government testers to determine the ability of people with different types of insurance to get appointments. The plan was to have people call doctors' offices and ask for an appointment saying that they have various types of insurance (e.g. Medicare, Medicaid, private insurance). This would provide a basis for determining how easy it is for people get care.

The article should have pointed out that this use of anonymous testers is absolutely standard. It has been used to uncover discrimination in the issuing of loans by banks, in selling cars, and offering jobs. It would be irresponsible for the government to be spending hundreds of billions of dollars a year on programs like Medicare and Medicaid without knowing how effective they are in providing care.

Therefore when Senator Orin Hatch complained that the administration was "wasting taxpayer dollars to snoop into the care physicians are providing their patients", he was not saying anything that made sense. Presumably he was doing the bidding of the doctors' lobby.

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Just asking, and asking why no one in the media is asking. The Washington Post, NYT and other major news outlets have been running wild yelling about excessive public sector pensions. The median pension for a public sector worker is a bit over $20,000. In many cases this is their sole retirement income, since they are not covered by Social Security. The pensions of public sector employees has been the topic of numerous front page stories in major newspapers.

This is why it is striking that no one raised this question with the announcement that Christine Lagarde had been selected as the new director of the IMF. IMF economists are often able to retire with 6-figure salaries in their early 50s. This is likely to strike many people as unfair by itself, however it would seem especially inappropriate in an institution that has explicitly called for governments to raise the age of eligibility for much smaller pensions to 65 or even 67. 

And the strangest part of it all is that no one in media is even talking about it.

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A Washington Post article on the budget negotiations told readers that the battle over the budget:

"has set off an ideological battle across the Capitol."

It is not clear why anyone would think that members of Congress care about ideology. These are politicians who hold their jobs based on their ability to appeal to powerful interest groups, not their ability to espouse political philosophy. It is reasonable to assume that their stances on the budget involve appeals to these interest groups, some of whom are anxious to avoid higher taxes and some of whom value the government programs that could be cut. There is no reason to assume that ideology has anything to do with this dispute.

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The NYT told its readers nothing when it said that California is using an optimistic revenue assumption of an additional $4 billion in revenue next year in order to balance its budget. It is unlikely that even 1 percent of NYT readers have any idea of how large California's budget is. There is no way to assess the importance of the revenue assumptions or spending cuts discussed in this article without knowing how large the total budget is.

California spends roughly $130 billion a year, so assuming a $4 billion rise in revenue, this would be an increase approximately equal to 3 percent of the budget [corrected -- thanks GP].

One of the major reasons that the public is so ill-informed about the budget (at all levels of government) is that reporters routinely report budget numbers without any context. Since almost no one knows how big the total budget is, they don't realize that many of the items drawing attention from politicians or the media are irrelevant for all practical purposes.

For example, the $1 million Woodstock museum that Senator McCain made a major prop of his 2008 presidential campaign cost 0.00003 percent of the federal budget. If the media had made a point of putting this cost in the context of all federal spending, it is likely that Mr. McCain would have been forced to find a more substantial item in the budget to make an argument about government waste.

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That point would have been worth making in an article about new drugs approved by the Food and Drug Administration for treating prostrate cancer. According to the article, these drug costs can cost up to $8,000 a month. If the drugs were sold in a free market without patent protection, they would almost certainly sell for less than $100 a month. It would have been worth noting this cost of the patent system for financing prescription drug research. Add a comment

The NYT has a piece this morning on the teacher evaluation policy used in the Washington, DC schools. The end of the piece includes a quote from Mark Simon who works on education issues with the Economic Policy Institute (my former employer). In identifying the Economic Policy Institute (EPI), the NYT added the comment:

"which receives teachers’ union financing."

While it is arguably relevant that EPI gets teacher union funding in this context, it is unusual for the NYT to present the sources of financing for individuals or organizations who get large amounts of money from the corporate sector.

The most obvious example of this difference in policies is Erskine Bowles, one of the co-chairs of President Obama's deficit commission. Mr. Bowles receives $350,000 a year as a director of Morgan Stanley. It is worth noting that the Bowles-Simpson report did not include a financial speculation tax or any other tax on the financial sector, making Wall Street one of the few industries to escape unscathed. This is especially striking since there has been a major push by many in Washington and around the world for a financial speculation tax and even the International Monetary Fund has called for a substantial increase in taxes on the financial sector.

In the same vein, the NYT printed a blogpost by Laura Tyson, another Morgan Stanley director, arguing against taking any steps to lower the value of the dollar against the Chinese yuan. Morgan Stanley has substantial interests in China. The NYT did not identify Ms. Tyson's ties to Morgan Stanley in this piece.

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The rules under which President Obama's fiscal commission were formed are very clear. They required that any report must be approved by a vote of 14 of the 18 members. The rules also required that the vote take place by December 1, the date that the commission went out of existence.

As it turned out, there was no plan approved by 14 of the 18 commissioners. Nor was there a formal vote taken by the members of the commission before December 1, although 11 of the 18 members did indicate support for a plan from the co-chairs Erskine Bowles and Alan Simpson on December 2, the day after the commission went out of existence.

This means that there is no commission report. We can assume that when reporters at the Hill or other publications refer to the Bowles-Simpson report as the commission's report that they are telling us that they like the report. However they are not conveying information accurately to readers.

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In a segment of Morning Edition where Scott Horsley discussed the budget negotiations, he told listeners that we face a large debt because Congress likes to spend money. This is like saying that firefighters spray water on buildings because they like to spray water from hoses.

The proximate cause of the large budget deficit, as every budget analyst knows, is the economic downturn caused by the collapse of the housing bubble. If Congress opted not to spend money, then the economy would have sunk further and the unemployment rate would be considerably higher today. 

There are many people who make up stories about out of control government spending. This is not true and NPR's reporters should know this fact.

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A Post article on the possible effects of lowering of the loan limit for Fannie and Freddie backed mortgages said this could hurt the "faltering" housing market, pushing prices down further. Of course the current price decline is simply the deflation of a bubble. Nationwide prices still have to fall by around 10 percent to return to their trend level.

The piece is also somewhat confused on the effect that lowering the limit would have. It tells readers that:

"The loan limit [the new limit of $625,500]— down from $729,750 — would have affected about 40 percent of mortgages made in Great Falls if it were in place last year and more than 20 percent of the loans made in expensive areas such as Bethesda, McLean, Chevy Chase, Dunn Loring, Potomac, Fairfax Station and Upper Northwest Washington, according to a Washington Post analysis of data from LPS Applied Analytics."

Many homebuyers would take advantage of the opportunity to borrow up to the limit when buying a new house because they can get a low interest rate. If the limit were lowered, many of these upper income homebuyers would simply arrange to put up a larger downpayment. In other words, the limit is likely a major factor determining the size of the mortgage.

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The NYT has an excellent piece today presenting evidence that the Energy Information Agency has been presenting an overly optimistic picture of potential shale oil reserves as a result of relying on industry claims instead of independent analysis.

It also has a piece on an rule change by the Securities and Exchange Commission that allowed gas companies to claim much larger reserves. Yesterday it ran a piece suggesting (based on internal e-mails and discussions with company insiders) that these companies were inflating their reserves in press releases and other company documents.

This is what newspapers are supposed to do.

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The NYT tells us that doctors are really upset that the government is trying to find out how easy it is for patients to get access to their services. The article interviews several doctors who expressed anger that the government plans to have testers call for appointments without identifying themselves as testers. The purpose is to determine how difficult it is for people with various types of insurance (e.g. Medicare and Medicaid) to get appointments.

This is a standard practice for researchers. In fact, it would be outrageous if the government were spending close to $1 trillion a year on various health insurance programs without knowing how effective they were in providing care.

While the NYT did interview some people connected with the government testing program, it should have interviewed some independent experts who could have reaped ridicule on the doctors. Of course no one forces the doctors to practice medicine in the United States. If they find the government too intrusive, as several complained, then they have the option to work in Canada, the United Kingdom or any other wealthy country and earn about half as much.

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