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).
Major news outlets like to adhere to the pretext that the truth in any political argument always lies in the middle. This means that they feel the need to say that the truth in the current battles over the budget and Medicare lies somewhere between the Democratic and Republican positions.
In the past this practice meant, for example, that most of these news organizations said things like the truth on civil rights was somewhere between the positions put forward by people like Martin Luther King and segregationists like George Wallace. Many might think the truth does not always lie between the positions set out by the major actors in national political debates.
In keeping to this "truth lies in the middle" approach, AP's Fact Check criticized Representative Debbie Wasserman Schultz, the chair of the Democratic National Committee, for attacking Representative Paul Ryan's plan for Medicare, which was adopted by the Republican House. Fact Check criticizes Wasserman for:
"falsely accusing the GOP of pushing a proposal that tells the elderly 'you’re on your own' with health care and that lets insurers deny coverage to the sick."
Fact Check goes on to quote Wasserman as saying about the Ryan plan:
"'You know what, you’re on your own. Go and find private health insurance in the health care insurance market; we’re going to throw you to the wolves and allow insurance companies to deny you coverage and drop you for pre-existing conditions. We’re going to give you X amount of dollars, and you figure it out.'"
It then tells readers:
"THE FACTS: First, the Ryan plan explicitly forbids insurance companies from denying coverage to anyone who qualifies for Medicare, including those who have pre-existing illnesses. Second, it does not merely send money to the elderly and leave them to their own devices in arranging for medical care.
"The plan calls for Medicare to stay the same for people 55 and older. But starting in 2022, new beneficiaries would get their health insurance from competing private insurers instead of from the government. The government would offer subsidies to pay for the coverage and set standards that insurers must follow. One condition, says the plan, is that participating insurers “agree to offer insurance to all Medicare beneficiaries, to avoid cherry-picking and ensure that Medicare’s sickest and highest-cost beneficiaries receive coverage.”
"Nor would the government merely send 'X amount of dollars' to the elderly and let them figure out whether they can afford coverage. The subsidies would go to the plan selected by the beneficiary."
While Fact Check is correct on the treatment of pre-existing conditions, it is wrong to imply that the Ryan plan in any way guarantees coverage. According to the Congressional Budget Office's (CBO) projections, the cost of a Medicare equivalent plan for a person at age 65 would be equal to 44 percent of the median person's income by 2030. It would have risen to 68 percent of the median 65-year old's income by 2050. (This ignores the fact that the plan increases the age of eligibility to 67 by 2046. )
Health care costs are higher for older retirees. CBO's projections imply that by 2050 the cost of a Medicare equivalent plan for someone age 75 would be 143 percent of the median 75-year-old's income and 200 percent of the median 85-year-old's income. Given the huge gap between the cost of care and the ability of seniors to pay it is wrong to imply, as Fact Check does, that the Ryan plan in any way ensures that seniors will get decent coverage. As Wasserman claimed, if the Ryan subsidy is insufficient to pay for care, the plan tells seniors that they are on their own.
The truth does not always lie in the middle. Fact Check would have known this if it had bothered to analyze the CBO projections before criticizing Representative Wasserman.Add a comment
The Washington Post, which is part of a corporation whose primary income comes from for-profit colleges, told readers that new regulations on student loans would:
"effectively would shut down for-profit programs that repeatedly fail to show, through certain measures, that graduates are earning enough to pay down the loans taken out to attend those programs."
It is important to note that the rules being proposed don't restrict for-profit colleges in any way. They simply impose conditions that they must meet in order for their students to be eligible to receive student loans.
The rules are restrictions on students trying to get loans in the same way that prohibitions on using food stamps for junk food would a restriction on food stamp recipients, not restrictions on the junk food industry. In that case, the junk food industry would still be free to sell their product to whoever wanted to buy it, including people receiving food stamps. However, they would just be prohibited from buying the junk food with their food stamps.
In the same way, anyone who wants to would still be able to attend any for-profit college they chose. They could even borrow money to do so. They would just be unable to get a subsidized loan from the government for this purpose.Add a comment
The Washington Post reported that House Budget Committee Chairman Paul Ryan won applause from the Republican freshman caucus when he criticized President Obama for saying that Ryan's Medicare plan would turn the program into a voucher system. The Post should have reminded readers that Ryan Medicare plan does turn the program into a voucher system.
Ryan's plan gives beneficiaries a fixed amount on money that they can use to buy insurance in the private market. This is what most people would consider a voucher system. The Congressional Budget Office's projections indicate that it would raise the cost of buying Medicare equivalent policies by $34 trillion, approximately 5 times the size of the projected Social Security shortfall.Add a comment
That's what readers of the Washington Post front page article on the economy are asking. Those who know economics saw that house prices were falling and would continue to fall. This decline has eliminated close to $1 trillion in housing wealth since the peak reached last July. It will likely eliminate another $1 trillion by the end of the year. The winding down of the original stimulus package, coupled with state and local government cutbacks, was expected to be another major source of drag on the economy.
The boost provided by the Fed's QE2 policy was generally anticipated to be limited, lowering 10-year Treasury rates by perhaps 20-30 basis points. The net stimulus from the tax cuts was very modest, with the 2 percentage point cut in the Social Security tax providing only marginally more stimulus than the Making Work Pay credit that it replaced.
The problem appears to be the Post relies on experts who are poorly informed about the economy. This is the reason it failed to notify its readers of the dangers created by the growth of the housing bubble. It continues to be a major problem with its economic reporting.
It is also worth noting one other potential source of stimulus not mentioned in this article: a lower valued dollar. A lower dollar would make U.S. goods more competitive in world markets. This would stimulate the economy by reducing imports and increasing exports.
In the longer run it will be necessary to have the dollar fall to bring the trade deficit closer to balance. Until the trade deficit is brought down, then by definition the country must either have a large government deficit or negative private savings, or some combination of the two. This is implied by the fact that the trade deficit is equal to net national savings so that if the country is running a deficit, then the public and/or private sector must have negative savings.Add a comment
The bankers are warning of Armageddon if a rule from the Dodd-Frank bill is left in place that requires that retain a 5 percent stake in mortgages where the owner puts less than 20 percent down. In effect, that if the bank sells a loan into a security pool that had a down payment of less than 20 percent, it will be liable for at least 5 percent of the losses incurred on the mortgage if there is default.
While the bankers are portraying this as an ominous restriction that will prevent them from making loans to moderate-income homeowners, a little arithmetic suggests otherwise. Before the bubble, Freddie Mac estimated that its average loss on a foreclosed property was 25 percent of the mortgage's value.
If we assume that the mortgages in question will have the same 25 percent loss rate once the market becomes more normal, then this would imply a loss of 1.25 percent of the mortgage's value, given the bank's 5 percent stake. If one in ten of these mortgages go bad, then this implies an average loss of 0.125 percent on loans in this category.
However, this calculation assumes that the bank can sell off a mortgage with less than 20 percent down at the same price that it can sell off a mortgage with 20 percent or more down. Since this is almost certainly not true, then the loss to the bank from this provision would be somewhat less than 0.125 percent of the price of the mortgage. If this loss were fully passed on to homebuyers then the impact of this provision would at most be equivalent to raising the cost of a mortgage by 0.13 basis points, and almost certainly considerably less. Given this arithmetic, it is not plausible that this 5 percent rule will have any noticeable effect on the access of moderate-income families to mortgages.Add a comment
Of course she probably did not know that this is what she is doing in her hypothetical conversation between "Paul" and "Barack," but that is exactly what she is doing when she touts the lower than expected cost of the Medicare drug benefit. The main reason that the drug benefit cost less than expected is that drug prices in general have gone up less than expected. And, the reason that drug prices have gone up less than expected is that there have been very few new blockbuster drugs in last decade.
This means that even though the industry claims that it is spending more than ever on research, it has much less to show in the form of new drugs than it did 20 years ago. It seems a stretch to blame this lack of innovation on the private insurers offering the Medicare drug benefit, but we can't question a very serious person with a regular column in the Washington Post.
The rest of this hypothetical discussion is equally confused. Contrary to what it asserts, the vast majority of Democrats did not think it was okay to have just private insurers in the exchanges set up under the Obama plan. They pushed hard to include a good public option. However, they did not have the 60 votes to get a public option through the Senate.
And the comparison of the cost of the Ryan plan to the existing Medicare plan is not a hypothetical. The additional $34 trillion cost that CBO projected for buying Medicare equivalent policies is based on the actual history with Medicare Plus Choice and Medicare Advantage. How many times must this experiment be repeated before its results are accepted?
It is worth noting that there is a simple mechanism for saving large amounts of money under the Medicare system. The government could give beneficiaries a voucher that would allow them to buy into the health care systems of other countries with longer life expectancies than the United States. The beneficiary and the government could split the tens of thousands of dollars in projected annual savings. If the Post was not such an ardently protectionist paper it would support this programAdd a comment
The WSJ had a chart alongside an article on the House vote on raising the debt ceiling. The chart shows the debt ceiling through time. The ceiling is shown in nominal dollars. By not adjusting for the growth in the economy or even the rate of inflation, the chart makes the ceiling look hugely out of line with past levels.
That's a good practice if the point is to scare readers about the size of the debt. It is bad journalism. The debt ceiling was higher relative to the size of the economy during World War II and its aftermath.
It's also worth commenting on its reference to credit default swaps (CDS) as a reference to the risk that investors assign that the U.S. could default on its debt. In fact, the price of CDS on the U.S. debt imply nothing of the sort. If the government actually defaults on its debt, the issuer of a CDS on the debt will almost certainly be bankrupt, so the CDS would itself be worthless.
Rather than being a bet on the government defaulting on its debt, the price of a CDS on U.S. government debt should be viewed as a bet on how much people will be willing to pay for the CDS tomorrow. In this way the price of a CDS on U.S. debt can be viewed as comparable to the price of an awful painting by a very famous artist. No one actually wants the painting, but it may hold great value because other people are willing to assign it great value.Add a comment
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