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 major battle line in Washington budget debates is between those who want to cut Social Security and Medicare, the social insurance programs that the vast majority of low and middle income people depend upon, and those who believe that the wealthy should pay more to support the government. Since government policies have led to an enormous upward redistribution of income over the last three decades, the latter group would seem to have a good case.

While this seems a rather straightforward battle over money, in a front page story the Washington Post told readers that this battle is actually about, "contrasting visions of the American idea." There is nothing obvious in this debate about "visions." The debate is being conducted by politicians, not political philosophers.

It is certainly understandable that the wealthy and their allies would try to turn this debate into a battle over visions, since they are hugely outnumbered by the people who stand to lose if their agenda is followed. However, most immediately this is a battle over money. Real newspapers would call it that way and not try to distract their readers' from the issues in front of their face. 

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Thomas Friedman joined the ranks of the Peter Peterson deficit hawks and criticized President Obama for not wanting to beat up the elderly. Specifically, he is upset that President Obama did not propose cuts to Social Security and Medicare.

Apparently Friedman is not aware of the upward redistribution of income over the last three decades. Nor does he seem to understand that the government just needs to spend money to create jobs now.

The current crisis is the result of the collapse of a housing bubble that he and his deficit hawk friends allowed to grow unchecked. The construction and consumption demand created by the bubble was driving the economy. Now that the bubble has collapsed there is nothing to replace this demand.

In the short-term this demand can only come from the government. In the longer term it will have to come from more a smaller trade deficit as domestic production replaces foreign production. This will only come about from a lower-valued dollar.

The long-term deficit is driven entirely by the broken health care system in the United States. If the United States paid the same amount per person for care as people in any other wealthy country we would be looking at large budget surpluses, not deficits.

Social Security is already largely in balance. According to the Congressional Budget Office it can pay all scheduled benefits until the year 2038 with no changes at all. After that date it can pay more than 80 percent of scheduled benefits indefinitely. A tax increase equal to 5 percent of the wage growth projected over the next three decades would be sufficient to allow it to make all scheduled benefits indefinitely.

 

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That's the question that readers are undoubtedly asking after seeing this piece on President Obama's budget proposals. The piece featured three separate cites from Maya MacGuineas, who is the president of the Committee for a Responsible Federal Budget. (One cite included unnamed "others.") The Committee for a Responsible Federal Budget has received substantial funding from Peterson and his foundation over the years. 

It then turns to an unnamed "GOP aide" who criticizes Obama's "fictitious savings," moving to Robert Bixby, the executive director of the Concord Coalition, an organization that was started by Peter Peterson and has received substantial funding from him and his foundation.

The piece concludes with a critical comment from Ken Kies, who is identified as "a longtime corporate tax lobbyist."

So there you have it: two budget experts funded by Peter Peterson, an unnamed GOP aide and a longtime corporate tax lobbyist. That's Fair and Balanced budget reporting at the Washington Post.

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Marketplace radio had author Don Peck on this morning to tell listeners that middle class jobs are disappearing because of globalization and automation. This is not true.

The reason why factory workers lose their jobs to people in developing countries rather than doctors and lawyers is that we designed trade rules to make our factory workers compete with low-paid workers in China, Mexico and other developing countries. We largely protect our doctors and lawyers from the same sort of competition.

If we had designed our trade policy to put our highly educated professionals in direct competition with their counterparts in the developing world, they would be no more successful than our factory workers. The difference is that professionals have enough political power to mostly preserve the barriers that protect them from such competition.

The over-valued dollar also worsens the situation for U.S. factory workers. If the dollar adjusted to a level that allowed for balanced trade we would have more than 4 million additional jobs in manufacturing.

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The Washington Post has a lengthy article on Germany which touts the austerity measures the country imposed in the last decade. It tells readers that Germany has the second highest tax rate on ordinary workers based on a chart that strangely excludes Denmark and Sweden, the two highest tax countries in Europe.

The article also never mentions the role of the European Central Bank (ECB) in the current economic crisis hitting most of Europe. The crisis was the result of the failure of the ECB to take steps to counteract housing bubbles before they grew to dangerous levels.

It has been made worse by the relatively restrictive monetary policy pursued by the ECB after the collapse of the bubble. While the Fed pushed its short-term rate to zero and engaged in several rounds of quantitative easing to bring down long-term interest rates, the ECB never allowed its overnight rate to fall below 1.0 percent and actually raised the rate to 1.5 percent in the spring. This has both slowed growth and increased the borrowing cost of heavily indebted countries.

The failure to mention the role of the ECB might lead readers to believe that the excessively generous social benefits are responsible for the European economic crisis. They are not.  

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The NYT did the old "entitlements" bashing in a budget piece today. In the Congressional Budget Office's Alternative Fiscal Scenario, which most analysts are using as the basis for budget debates, Social Security outlays are projected to increase by 25 percent as a share of GDP over the next two decades, from 4.8 percent to 6.0 percent. And all of this increase in spending will be covered by the bonds held in the Social Security trust fund.

By contrast, Medicare outlays are projected to increase by almost 70 percent, measured as a share of GDP, from 3.6 to 6.0 percent, in the Alternative Fiscal Scenario. The Medicare trust fund could only cover a small fraction of this projected rise.

These are qualitatively different situations and it is misleading to lump the two programs together as this article does.

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The NYT missed much of the story in its report on the likelihood of a default by Greece. One of the main factors exacerbating the plight of Greece and other heavily indebted countries in the euro zone is the relatively contractionary policies pursued by the European Central Bank (ECB), ostensibly to fight inflation.

If the ECB had a more expansionary monetary policy, the additional growth would increase tax collections in Greece and other countries. It would also reduce payments for unemployment benefits and other transfer programs.

In addition, an easier monetary policy would reduce the interest burden on heavily indebted countries. For example, if the ECB followed the example of the Fed, the Greek government would be able to borrow at a near zero interest rate.

Finally, if the ECB allowed the inflation rate in the euro zone to rise to 3-4 percent it would facilitate the necessary adjustment process that would allow Greek goods and services to become more competitive in the euro zone. If prices and wages in the euro zone were rising at a slightly faster pace then Greece can improve its relative position by keeping its wage and  price growth near zero.

By contrast, with very low inflation, wages and prices in Greece must actually decline for it to increase its competitiveness. It is very difficult and costly to bring about this sort of deflation. It usually requires many years of high unemployment. 

The NYT neglected to mention these ways in which the policies of the ECB have contributed to the crisis in Greece and other heavily indebted countries.

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The NYT implied that shale oil production and new oil sources elsewhere in the western hemisphere will transform oil production and use in the United States. For example, it notes that production from shale oil could exceed 2 million barrels a day by 2020 and then adds:

"The United States already produces about half of its own oil needs, so the increase could help it further peel away dependence on foreign oil."

Actually, this oil will largely replace declining yields from older fields in Alaska and elsewhere. The United States was not especially dependent on Middle East oil even before the new production in the hemisphere cited in this article. Only a bit over 20 percent of the oil imported in the United States came from the Middle East even a decade ago.

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That's what readers of his column complaining about President Obama's speech on the budget must conclude. He is upset that Obama:

"whispered about seriously reforming Medicare but then opted for changes that are worthy but small."

If Brooks has heard about the Affordable Care Act (ACA), he would know that it actually provides for large cost controls in Medicare. According to the Medicare trustees report, these cost controls would eliminate almost 80 percent of the long-run deficit projected over the program's 75-year planning horizon.

Brooks could read about these changes in the Congressional Budget Office's (CBO) long-term budget projections. CBO projects that future deficits will be manageable if the controls in the ACA are allowed to take effect. However, CBO concluded that Congress will reverse itself and not allow the controls to bite. However, it seems odd to blame President Obama for the fact that future Congresses might reverse the cost controls that he put into the Medicare program and it is simply wrong to claim that he did not do anything to restrict costs.

It is also worth mentioning that Brooks misrepresents the relative tax burdens of the wealthy and the middle class. He excluded payroll taxes from his calculations, which are extremely regressive. Also, there are a small number of very wealthy people who do in fact pay very low tax rates because the bulk of their income comes from capital gains. This is exactly the situation that President Obama described.

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NPR told listeners that the $1.2 trillion in deficit reduction being sought by the congressional super committee is inadequate, that in fact we need $4 trillion. It's great that they got the word from God on this one.

Those of us who look at numbers might think otherwise. The financial markets are saying loudly that there is no problem with current deficits, otherwise they would not be lending money to the United States for 10 years at interest rates of just 2.0 percent. The numbers also offer many examples of countries with (including the United States) which have had much larger debt to GDP ratios and have had no problem borrowing in financial markets.

The piece concluded by telling listeners that we may end up going 14 months until the next election without getting much done. Actually, for people who pay attention to the economy, the main way in which we are not getting much done is in reducing the unemployment rate. This is far and away the most important problem facing the economy in the minds of the vast majority of the public, even if not at NPR.

It is also worth noting that the failure to reduce the unemployment rate will reduce capacity and employment in the long-term. This was pointed out by Paul Krugman in a column today and by David Rosnick in a blogpost last week.

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It would have been useful to include the view of an economist in this article that reports on how China and India are now able to produce low-cost versions of bio-tech cancer drugs. These drugs sell now for several thousand dollars per dose as a result of government granted patent monopolies.

Patent monopolies lead to enormous market distortions in the same way as other barriers to trade. However, the impact of patents is much larger since they have a much bigger effect on prices. It is rare that tariffs raise the price of goods by more than 20-30 percent. By contrast, patents often raise the price of protected drugs by several thousand percent.

The huge profits created by patent rents are the cause of kickbacks to doctors, misleading information on the safety and effectiveness of drugs, and government corruption that extends the length and scope of patent rents. These distortions lower the quality of health care and raise its cost. There are far more efficient mechanisms for supporting medical research.

This article also errs in asserting that countries can only issue compulsory licenses for drugs in cases of emergencies. The terms of the WTO allow for compulsory licensing under fairly general conditions.

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Former Federal Reserve Board Chairman Paul Volcker lectured readers on the dangers of inflation in a NYT column today. He warned that a little bit of inflation invariably grows to a lot of inflation, which then carries a huge cost to contain.

Actually this has not in general proven to be the case. The one time in the post-war period where inflation clearly became excessive in the United States was in the 70s. This was due to a number of extraordinary events, including large oil price increases associated with the formation of OPEC and the Iranian revolution, a huge wheat deal with the Soviet Union, and a mis-measurement of the rate of inflation that got directly translated directly into wages and other prices as a result of wide-spread indexing. 

Even in this case, the cost of bringing inflation down with the 1981-82 recession was minor compared to the costs that the country is now enduring as a result of the current prolonged downturn. It is hard to see how any careful analysis of risks and costs would support Mr. Volcker's warnings on inflation.

It is worth noting that the financial sector might view the equation differently. Its assets are directly devalued by even modest rises in the rate of inflation. For this reason, the financial industry tends to be strongly opposed to inflation even at the cost of high unemployment.

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The Washington Post has a front page article outlining President Obama's plans for deficit reduction. It then quotes Representative Paul Ryan blaming "uncertainty" for slow growth and high unemployment.

If it were the case that firms would actually be hiring except for uncertainty then we would expect to see firms increasing the average number of hours worked per workers and also turning to temporary workers. The argument here is that firms are seeing demand for labor, but they are scared to take on the commitment of hiring another worker because they think that President Obama would regulate them to death. This means that they would seek to fill this demand through alternative routes.

The data contradict the uncertainty story. Average weekly hours worked is still about 1 percent below its pre-recession level when firms presumably did not suffer from uncertainty.

avg.hours

Source: Bureau of Labor Statistics.

The data on temp employment is even less friendly to the uncertainty story. Temp employment is still down more than 15 percent from its pre-recession level.

temp_emp

Source: Bureau of Labor Statistics.

In short, the evidence does not support Representative Ryan's assertion that uncertainty is a major obstacle to hiring and recovery. It would have been appropriate to call readers attention to the fact that the data contradicts Ryan's assertions. Post reporters have the time to evaluate the evidence, the vast majority of its readers do not.

Serious news stories, unlike this one, do not include in their first sentence a reference to "the nation’s rocketing federal debt." Such phrases are best left for the opinion pages.

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The Post had a front page column reporting on the cost of tax breaks. The piece likely gave many readers a misleading picture of the main beneficiaries of these tax cuts when it told readers that:

"the bulk went to private households, primarily upper-middle-class families that Obama has vowed to protect from new taxes.'The big money is in the middle-class subsidies,' said Syracuse University economist Leonard Burman, former director of the nonpartisan Tax Policy Center."

In fact, by far the largest beneficiaries of these tax cuts are upper income individuals as the chart accompanying the piece shows. For example, tax breaks amount to average of $82,400 for families with income between $500,000 and $1,000,000. Close to 70 percent of the mortgage interest deduction goes to families with incomes above $100,000 a year.

These tax breaks tend to be worth less to more moderate income families since in most cases they do not amount to much more than the standard deduction. That means that most families near the median income (@$60,000) see little benefit from these tax breaks.

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The Washington Post ran a fascinating article (researched by ProPublica). The article examined 15 instances in which pharmaceutical or medical supply companies reached settlements in connection with kickback schemes where they paid doctors to use their drugs or medical equipment. The study found that none of the 75 doctors paid any fine or suffered any professional sanction.

While this is an amazing situation, since it implies that these doctors suffered no consequence even after being caught in actions that could have endangered the health and the life of their patients, it is even more remarkable that patent protection, the underlying cause of the problem, was never mentioned. Government granted patent monopolies allow drug companies to charge prices that several hundred or even several thousand percent above the free market price.

In a free market, most drugs would be sold at just $5-$8 per prescription, as is the case with hundreds of generic drugs. However, patent monopolies allow drug companies to sell these drugs for hundreds or even thousands of dollars per prescription. This enormous gap between the patent monopoly price and free market price is the basis for the kickbacks. In the absence of patent protection, the profit margins would not be sufficient to allow drug or medical supply companies to pay kickbacks.

The failure to mention the underlying economics of these kickbacks would be like reporting on payoffs of key money to prospective landlords as a way of evading rent controls, without ever mentioning that apartments are subject to rent control. Key money would not make sense in a housing market with no rent restrictions, just as kickbacks to doctors would not make sense in a pharmaceutical market without patent protection.

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The Washington Post business section ran a piece today titled, "a fiscal prophet shapes debt debate." The prophet being referred to in the headline is Harvard economics professor Martin Feldstein, who served at one time as President Reagan's chief economist.

Some of us know Mr. Feldstein for some less than prophetic work. For example, in the spring of 1993, when Congress was debating the Clinton tax increase, he wrote a column in the Wall Street Journal that claimed the Clinton tax increases will raise little, if any, revenue. His argument was that the disincentive of the higher tax rates would more than offset the impact of the higher rates themselves.

Feldstein also gained notoriety early in his career for publishing an article that purported to show the Social Security reduced private savings. It turned out that his results were driven by a computer programming error. When the error was corrected his results were statistically insignificant.

He updated this study in 1995 and claimed that with the additional years of data, his original results were now shown to be correct. However, it turned out that once the Commerce Department revised the savings data, his results were again insignificant.

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George Will has been a harsh critic of President Obama's stimulus package, claiming that it did little to boost the economy and create jobs. He would rather see him reduce the deficit. However in today's column he firmly expresses the view that government spending does create jobs, at least when it is tied to the military.

In this piece he warns readers that:

"The 1.5 million active-duty members of the armed services and 700,000 civilian employees of the Defense Department depend on an industrial base of more than 3.8 million persons. According to the Pentagon, a sequester would substantially shrink those three numbers, perhaps adding a point to the nation’s unemployment rate."

So here we have Will clearly asserting that cuts in government spending will add to the unemployment rate. It is hard to reconcile this view with his past criticisms of the stimulus and calls for deficit reduction.

He must hold some magical view that if we spend money on something related to the military that it creates jobs, but otherwise it has no effect on employment. Perhaps if President Obama had labeled all the items in his stimulus package "defense" (e.g. "the defense green jobs program" or the "defense emergency assistance to state governments") Will would have supported it.

 

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The NYT has an interesting piece discussing Adam Posen, a U.S. citizen who sits on the Bank of England's monetary policy committee. It reports Posen's view that the Bank of England and other central banks should take aggressive actions to boost the money supply in order to support growth. It contrasts this view with the concerns of inflation raised by others, noting that inflation in the U.K. has been 4.5 percent over the last 12 months.

The piece then presents Posen's assertion that inflation will come down, which is met by the skepticism of his critics. It would been helpful to tell readers that inflation already has come down. It was 0.0 percent in July, -0.1 percent in June, and 0.2 percent in May. This means that over the last three months inflation has been increasing at just a 1.0 percent annual rate. This piece of information would have been helpful to readers.

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Frank Bruni, one of the NYT's new columnists, ran a column today complaining about government corruption in Italy and the impact that an aging population in both Italy and the U.S. will have on reducing the living standards of our kids. This is one of those columns which could have been so easily prevented if the NYT just required a remedial 3rd grade arithmetic course for columnists that intend to write on economic issues.

For example, Bruni complains that seniors and older workers want to protect Social Security and Medicare. If he looked at the Congressional Budget Office's projections for Social Security he would see that they show a 1.6 percentage point increase in the payroll tax would leave the program fully solvent throughout its 75-year planning period.

By comparison, workers' wages are projected to rise by almost 40 percent over the next three decades. This means that the program can be kept fully solvent with a tax increase that is less than 5 percent of projected wage growth over the next three decades. This will impoverish our kids?

Of course most workers have not shared in the wage growth over the last three decades. The vast majority of wage growth has gone to those in the top 10 percent of the wage distribution. However this raises questions about  government policies that redistribute income upward, like trade policy, Federal Reserve Board policy, and patent policy. However, none of these villains appear in Bruni's column, he just wants to take Social Security checks, which average less than $1,200 a month, from current and future retirees.

The same story applies to Medicare. The problem is not that Medicare beneficiaries are getting such great care. The problem is that we pay way too much to pharmaceutical companies, hospitals, and doctors. If we paid the same amount per person for our health care as people in other wealthy countries then we would not have to increase payments to Medicare for many decades into the future. But again, Bruni's target is the seniors getting Medicare, not the powerful interests driving up costs. 

We find the same logic in Bruni's diatribes against Italy. He complains about the excessive pay and perks of the Italy parliament. While he may well have a case, if we take his numbers at face value, the 1000 member parliament costs Italy around $200 million a year. By comparison, Robert Rubin personally pocketed close to $120 million sitting near the helm at Citigroup, as the company was being driven into the ground and taking the economy down with it.

There is no excuse for public officials ripping off the people they are supposed to represent. But it is striking that they feature so prominently in Bruni's piece, while the barons of finance, who make the corruption of public officials look like chump change, are nowhere to be found.

Finally, Bruni somehow thinks that young Italians will be hurt by the country's low birth rate. In fact, this is likely to help future generations of Italians since it means that there will be shortages of workers. That will allow them to command higher wages. There are also many benefits of a smaller population that will not be picked up in official statistics. For example, public facilities like parks and beaches will be less crowded, as will transportation facilities. Also, it will be much easier to reduce emissions of greenhouse gases and other pollutants with a smaller population.

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In the NYT, Germany's unemployment rate seems to vary depending on which article you read. We can look at the chart accompanying a piece on Geithner lecturing the European Union on how to deal with debt and see that the German unemployment rate is 6.2 percent. Or we can read in a piece discussing Berlin's economic and social prospects that the city's 13.3 percent unemployment rate is far above the national average of 7.0 percent.

The 6.2 percent number in the chart is right. This is the OECD's harmonized unemployment rate. It uses essentially the same methodology as the United States government, which makes it a meaningful figure for NYT readers.

The 7.0 percent rate is the official German government rate. The German government methodology counts many part-time workers as being unemployed. This number does not provide an apples-to-apples basis for comparisons with the U.S. unemployment rate. Therefore it should not appear in a news story in the U.S. media. 

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In an article reporting the results of a new public opinion about President Obama and Congress, the NYT told readers:

"Two-thirds of the public say Mr. Obama has not made progress in fixing the economy, even though a majority of people concede the condition of the national economy is not something a president can do a lot about."

The public can only "concede" that the president cannot do much about the economy if it is in fact true that the president cannot do much about the economy. Of course the mainstream of the economics profession would argue the opposite. For example, through Keynesian stimulus, it is possible to boost growth and create jobs. Alternatively, the decision to make budget cutbacks in a downturn adds to unemployment and slows growth.

By using the term "concede," the NYT is implying that this view is wrong. It would be interesting to know how it made this determination.

Alternatively, the paper could have simply told readers what its poll findings actually show: most people do not believe that the president can have much impact on the economy.

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