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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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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In an article discussing debt problems of euro zone countries the NYT told readers that a statement issued by the Italian government yesterday:

"said the government was preparing steps to lift growth and recently passed measures to control public finances through tax increases and spending cuts."

It would have been appropriate to remind readers that spending cuts and tax increases slow growth by pulling money out of the economy. It is likely that whatever steps the Italian government might prepare to boost growth will be more than offset by the impact of its austerity package.

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President Obama made a simple and true statement in his speech on the budget Monday. He said that there were millionaires and billionaires who pay tax at a lower rate than middle income families.

Many news outlets went to town to point out that on average millionaires and billionaires pay tax at a higher rate than middle income families. Of course this is not what Obama said. He was pointing out that some of the richest people in the country (Warren Buffet was his model), get most or all of their income as capital gains and therefore only pay taxes at the 15 percent capital gains rate.

The NYT gets this right today. Other outlets could have saved a lot of trees and better served their readers if they didn't work so hard trying to refute something that President Obama did not say.

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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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