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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During the presidential primaries, then Senator Obama gave a talk at fundraiser in which he referred to people in small town Pennsylvania as "bitter." The media highlighted this "gaffe" and made it a major theme over the next few weeks of the campaign. In other words, it was big news that Obama had said something that the media viewed as inappropriate.

Last night, in the official Republican response to President Obama's state of the union address, Representative Paul Ryan suggested that the United States could be like Greece if it did not change its current budget path. This comparison was either dishonest or reflected an extraordinary degree of economic ignorance.

Briefly, there are three big reasons that the United States is very different from Greece:

1) The United States has its own currency -- this means that we can always buy our own debt. That could lead to inflation, but insolvency is not an issue. So the story of no one being willing to buy U.S. bonds is not even a theoretical possibility. Of course the people who actually have their money on the line are very willing to buy U.S. bonds, demanding an interest rate of just 3.4 percent on 10-year Treasury bonds.

2) The United States collect taxes. The OECD puts tax evasion in Greece on the order of 35 percent. This of course encourages corruption in all aspects of Greek government. If the rich rip off the government by not paying the taxes they owe, why shouldn't everyone else try to rip it off too?

3) The United States has a huge diversified economy. If you want to find an economic illiterate, look for someone who warns that the dollar will plummet in value if we don't get our debt under control. If our dollar plummets in value (e.g. 2 dollars = 1 euro, 3 yuan = 1 dollar), the U.S. would suddenly be hyper-competitive. We would buy nothing from the countries who rely on the U.S. market. And our exports would be wiping out competitors around the world. For this reason, China, Germany, Japan and everyone else would make sure that the dollar did not just plummet. This would not be the case with Greece if it did have its own currency.

This is why we give politicians who compare the U.S. to Greece a nice lollipop and balloon and pat them gently on their little head. And if they are important politicians, we give them a big helping of ridicule.
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Every budget expert knows that Social Security is fully funded through the year 2037 with no changes whatsoever. Even if nothing is ever done the program will always pay close to 80 percent of scheduled benefits. It also, under the law, cannot contribute to the deficit since it cannot spend more money than is in the trust fund.

Medicare costs are projected to rise more rapidly, but this is due to rising private sector health care costs, not the inefficiency of Medicare. This means that containing Medicare costs and preventing a soaring deficit involves fixing the health care system, not gutting Social Security and Medicare.

While these simple facts are known by every budget expert, that doesn't keep the pundits from insisting that President Obama and other politicians support cuts to Social Security and Medicare. Hence we get Ross Douthat whining that no one seems to be listening to him in today's NYYT.

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The New York Times told readers that: "The median Democratic Congressional district now has a population 11 times as large as the median Republican Congressional district, according to an analysis by Transportation Weekly, a trade publication that focuses on federal transportation spending."

This is not right. Congressional districts are required to have roughly the same population under the constitution. There cannot be perfect equality since districts cannot cross state lines but the most populous district does not have even twice the population of the least populated district. The idea that the median Democratic district has 11 times the population of the median Republican district is absurd on its face.

 

[Addendum: the NYT corrected this article -- ratio referred to population densities, not population.

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Why does the NYT have to lump Medicare and Social Security together when everyone knows their stories are fundamentally different? According to the Congressional Budget Office, over the next quarter century annual spending on Social Security is projected to increase by an amount equal to 1.4 percentage points of GDP. This is considerably less than the increase in annual defense spending of 1.7 percentage points of GDP between 2001 and 2010. And, Social Security expenditures over this period are fully paid for by past and future Social Security taxes.

In contrast, the cost of Medicare is projected to rise by 2.3 percentage points of GDP over this period, starting from a considerably lower base. The annual cost of Medicaid and other health care programs is projected to rise by 1.9 percentage points. As everyone recognizes, the story of long-term budget deficits is the story of our broken health care system. Why is this so hard to tell the public?

(Thanks to Daniel Alvarado.)

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The Post wrongly told readers in a front page news story that "budget analysts across the political spectrum agree that popular Medicare and Social Security programs will have to be overhauled to truly cure the nation's ills." This is not true.

For example, a book that was co-authored by Peter Orszag, who had been President Obama's director of the Office of Management and Budget, and Peter Diamond, a Nobel Laureate and Obama nominee to Fed, suggests relatively modest changes to Social Security. In fact, virtually all budget analysts across the political spectrum agree that the shortfall in the Social Security program is relatively minor.

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Those of us who follow economic reporting closely have long recognized the Washington Post's opinion pages as the mother lode of confused economic thinking. Fareed Zakaria lives up to the standard in today's column, which offers policy tokens for both the left and right.

He starts by noting that the tax/spending package agreed to by President Obama and the Republicans last year added $900 billion to the deficit over 10 years and then wrongly tells readers:

"We can't keep playing this game."

Of course we can. The important point, apparently lost on Zakaria, is that the deal increased the deficit by $900 billion over the next two years. This is a period in which virtually every economic forecast projects the U.S. economy to be well below full employment levels of output. This means that deficit spending will crowd out little or no private investment. So what exactly is the problem with playing this game; that we might put more people to work?

Even the interest burden on this debt need not pose a problem. The Fed could simply buy and hold the bonds used to finance the debt. This would mean that the interest is paid to the Fed, which then refunds it to the Treasury at the end of the year. Last year the Fed paid almost $80 billion back to the Treasury. When the economy eventually moves back toward full employment it can raise reserve requirements in the banking system to ensure that the additional reserves don't lead to inflation.

Zakaria then gives us the right's caricature of U.S. politics, telling us with reference to policies to promote growth:

"The left and right disagree here as well, with the right focusing more on measures to spur the private sector and the left on government spending."

Let see, the right tends to be in favor of having the government impose strong patent and copyright monopolies on the market. Is this government involvement spurring the private sector? Does it spur the private sector more than having the government contract with private firms to develop new drugs or new software? If so, it is not obvious how.

How about if the Fed targets a higher rate of inflation (e.g. 3-4 percent) in order to reduce real interest rates and reduce private sector debt burdens. Is this a focus on government spending as opposed to the private sector?

He then tells us that the private sector has been investing furiously around the world but "meagerly" in the United States. If Zakaria had access to the Commerce Department's data he would know that investment in equipment and software has been rising at almost a 20 percent annual rate over the last year. Actually, investment has been relatively healthy in this downturn.

Zakaria then gives as an example of over-regulation driving business overseas Goldman Sachs' decision to only offer Facebook shares to its foreign customers. It's hard to see exactly what the problem is here. Facebook is trying to skirt U.S. laws on disclosure requirements for publicly traded companies. They are apparently able to do this by just selling shares to foreign investors. Perhaps this means that foreign investors will get a good deal or alternatively will get scammed by Facebook, but it is hard to see any important implications for the U.S. economy. This doesn't affect how many jobs Facebook will create in the United States.

Zakaria then turns to drug development where the Obama administration announced plans for a $1 billion program to help spur progress. He then complains that regulations are the problem, commenting that:

"The Food and Drug Administration takes twice as long to approve a drug as its European counterparts. As a result, health-care research has been moving offshore, particularly as China and India innovate in every product and process."

Actually this makes no sense whatsoever. Under the TRIPs agreement, countries are prohibiting from providing favorable access rules based on the location of research. This means that the rate at which the FDA approves drugs would have nothing to do with a company's decision on where to locate its research. We should expect company's to base their research where it can be done at the lowest cost. They would then look to have drugs approved wherever it is profitable to have them approved. There is no logical connection between the two, even though pharmaceutical industry lobbyists may try to convince members of Congress and gullible columnists that there is.

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The New York Times was touting the prospect of renewed spending by business leading the recovery. There are two major problems with this story. First, investment in equipment and software has already been growing rapidly. Over the last four quarters it has grown at almost a 20 percent annual rate. People who have access to the Commerce Department's data on GDP (a group that apparently excludes employees of the NYT) are aware of this fact.

The other important fact known to people with access to this data is equipment and software spending is actually a relatively small share of GDP. (There was huge overbuilding of non-residential structures, so it is not plausible to imagine a big pick-up in this sector any time soon.) Equipment and software spending were equal to 7.1 percent of GDP in the third quarter of 2010. This means that even if the growth rate doubles to 40 percent, it would only add 1.4 percentage points to GDP growth. This would have less impact than reducing imports by 10 percent.

In short, while a more rapid pace of investment spending can be helpful, it is unlikely to be sufficient to restore the economy to healthy growth path. That will almost certainly require a reduction in the trade deficit, which in turn depends on a decline in the value of the dollar. The latter is apparently a low or non-existent priority for the Obama administration.

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With reference to intellectual property, the New York Times told readers that, "China has a well-earned reputation for theft." Intellectual property rules are defined by each country. China can only engage in "theft" if it has set up rules that is violating. In many cases, its laws on intellectual property do not provide clear protection to U.S. firms, therefore they may not be engaging in anything that can be described as "theft."

This article also misinforms readers about the relative size of the Chinese and U.S. economies. It told readers that China's per capita income is less than $4,300. This is the measure of income on an exchange rate basis. The more realistic basis for comparison is China's GDP measured on a purchasing power parity basis, which is $7,400 a year – 75 percent higher.

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An article that discussed President Obama's public campaign to boost exports told readers that the federal government "has little control" over the value of the dollar. This is not true. The Treasury and Fed could set out to lower the value of the dollar if they opted to do so. This could mean selling dollars in international money markets and buying other countries' currencies. They could even opt to peg the value of the dollar against other countries currencies, as China has done with the dollar.

In the Clinton years, Robert Rubin had a policy of pushing up the value of the dollar. He put muscle behind this effort through the U.S. control of the IMF at the time of the East Asian financial crisis. The conditions that the IMF imposed were so onerous that developing countries decided that they needed to accumulate massive amounts of reserves in order to avoid being put in a similar situation. This meant accumulating large amounts of dollars. They did this by keeping down the value of their currencies against the dollar (i.e. raising the value of the dollar).

It is very misleading to assert that the value of the dollar is outside of the government's control. President Obama, like his predecessors, has allowed the dollar to remain over-valued. An over-valued dollar effectively subsidizes imports and imposes a tariff on exports. There is nothing that President Obama's new competitiveness panel can realistically hope to do that would come close to offsetting the competitive disadvantage created by an over-valued dollar.

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The Post reported on the better than expected numbers on existing home sales reported for December. It told readers that:

"Low interest rates, relatively affordable prices and tentative optimism about the economy helped lure buyers in December."

Actually, the data on existing home sales reports on closed sales in December. It generally takes 6-8 weeks between when a house contract is signed and when the sales are closed. This means that the December data reflect attitudes in October and early November, not December.

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The NYT ran a piece profiling Gene Sperling, the new head of President Obama's National Economic Council (NEC), that could have been a paid advertisement. The piece completely ignores the economic imbalances that developed under the Clinton administration and hit their peaks during Sperling's tenure as NEC head, most notably the stock bubble and trade deficit caused by an over-valued dollar.

The article gives Sperling credit for coming up with the idea of using the budget surpluses at the end of the Clinton years to "save Social Security," which thereby prevented this money from being either spent or given back in tax cuts. It would have been worth noting that the surplus eventually disappeared as a result of the collapse of the stock bubble and the stimulus measures necessary to get the economy back on its feet.

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The NYT reported in some detail on the plans by conservative Republican House members for large spending cuts. The piece included several comments from Republican members saying that the country was on the edge of default.

It would have been helpful to point out that there is zero evidence to support this contention. Bond holders are willing to hold U.S. government debt at extraordinarily low interest rates. This means that investors who have tens of billions of dollars at stake do not share the concerns about the government's solvency expressed by these members of Congress.

It is also worth pointing out that the United States would never be in the same box as Greece or Ireland, as asserted by one of the representatives quoted in the article. Since the United States has its own currency, it can always have the Federal Reserve Board buy its debt. This can create a risk of inflation (in the current economic environment this risk is near zero), but there is no possibility that U.S. debt will lack buyers, as was the case with Greece and Ireland. 

In other words, this is a totally imaginary threat, like the prospect of Martians invading. It is possible that members really fear an attack from Martians, but responsible news reporting should point out that there is no basis in reality for such fears.

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The NYT adopted Washington insider standards today. In order to push a deficit reduction agenda, it told readers that the United States has: "an accumulated debt that is starting to weigh on the economy."

The article presents absolutely no evidence (literally) to support this assertion. The way an economist would look for evidence that the debt is weighing on the economy is by examining interest rates. The current interest rate on 10-year Treasury bonds is 3.44 percent. This is far lower in both nominal and real terms than it has been (except for the last two years) for most of the last three decades.

In other words, the standard way to measure whether the debt is imposing a burden on the economy is showing clearly that it is not. The NYT's assertion is just a complete fabrication that has no place in a news article.

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The NYT Magazine piece providing the inside story on President Obama's economic team in his first two years is littered with conservative talking points. For beginners we get the hoary myth that businesses are not hiring because they are "uncertain about government policy."

While businesses like to blame uncertainties over tax policy or regulation, there is zero evidence to support this assertion. If firms were seeing demand for labor that would cause them to hire, except for their uncertainty, then we should expect to see large upticks in average hours per worker and increased hiring of temps. In fact, average weekly hours is still down from its pre-recession level. Temp employment is down almost 15 percent from its pre-recession level. This suggests that the problem is lack of demand pure and simple, not uncertainty about regulation and taxes.

It is also worth noting that investment in equipment and software has been rising at almost a 20 percent annual rate over the last four quarters, so it's not accurate to say that businesses are not investing. It is also important to recognize that this component of the economy is only 7 percent of GDP, so if Obama's economic team is counting on business investment to boost the economy out of its slump, they are not very good at arithmetic.

The second business myth is the assertion that trade: "represents one of the 'solutions on the cheap' the president wanted, a way of promoting growth without deficit spending." This comment is made in reference to the South Korea trade agreement. In fact, in both theory and practice these trade deals are projected to have a minimal effect on jobs. U.S. trade deficits have in fact risen with many countries, such as Mexico, following the signing of trade agreements, meaning that they have been in the short-run job losers, not job gainers.

Finally, the piece tells readers that:

"Republicans have made shrinking government the core of their economic message."

Of course they are not really for shrinking government. Most of the Republican leadership supported the bank bailouts. They also support strong patent and copyright protection, which would have the government policing every aspect of people's lives. (One effort at copyright enforcement sought to make the Girl Scouts pay for the songs they sing around camp fires.) The Republicans also supported the 2005 bankruptcy reform that would have the government provide business with a much greater role in acting as a bill collector. The reality is that the Republicans are not interested in shrinking the role of government, even if this is what they say. They are interested in shrinking the government functions that help low and middle income people.

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Suppose that President Obama had a press conference where he announced that he had found a quarter. Once the press corps realized that he was not joking and that this was actually the point of his press conference, they would immediately rush out pieces about how the president was off his rocker.

Well President Obama has not, thus far, had a press conference on the topic, but a "senior administration official" reportedly touted an agreement with China to buy $45 billion in U.S. exports. The Post article provided no information about the time period over which these goods would be purchased (e.g. 2 years? 10 years?), nor is there any reason to believe that the deal actually involves new exports. (One of the items in the Post article is planes being sold by Boeing, the sale of which had already been announced.)

While $45 billion may sound like a big commitment, senior administration officials know that it is not. The United States had a trade deficit with China of more than $250 billion over the first 11 months of 2010. Exports of $45 billion over some indefinite number of future years, many of which were already in the pipeline, will not affect this in any noticeable way.

In other words, it's great that President Obama found a quarter, but he should not be wasting the public's time by telling us about his good luck. The media should be ridiculing him for implying that this is an economically meaningful event.

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The Washington Post had a front page article touting the growth of investment by Chinese firms in the United States as a way of creating jobs. In fact, as the chart accompanying the article shows, the vast majority of the investment involves buying up existing firms. In most cases, this will not create any jobs.

The amount of new investment has averaged less than $1 billion a year. This is less than 0.5 percent of the U.S. trade deficit with China and not the sort of economic development that would ordinarily merit a front page article.

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David Leonhardt has a nice piece pointing out that the difference between the unemployment rate in the United States and most European countries is due to the structure of the labor market, not the rate of GDP. The United States has actually done better in terms of GDP than Germany and most other European countries, yet it has a far worse problem of unemployment. (Germany's unemployment rate is below its pre-recession level.) Germany has encouraged companies to keep workers on working shorter hours. It is also more difficult in general to just lay off workers in Europe. These differences explain the better labor market outcomes in Europe. Add a comment

The Republicans have been ranting for most of the last year about the "job killing" health care bill (now changed to "job destroying" in an effort at promoting comity). As I noted yesterday, reporters are supposed to attempt to verify such accusations, not just repeat them.

The Associated Press made precisely the sort of effort at verification that reporters are supposed to do. They found the Republicans came up a bit short in the evidence department. The best they could do was an analysis from the Congressional Budget Office that estimated that around 600,000 people would opt out of the labor force if they could get health insurance through the new health care system. The reason is that they would no longer need to work for their health care coverage. This is not exactly "job killing" or "job destroying" – after all, the jobs will still be there, it's just that people will opt not to take them.

In this way we can think of the bill as being job destroying in the same way that winning the lottery might be job destroying. Many people who take home multi-million dollar jackpots opt not to work because they no longer need the money. The Republican methodology would have us worried about "job killing" lottery jackpots.

AP deserves credit for doing the sort of basic fact checking that good reporters do. This sort of reporting provides valuable information to the public.

Addendum:

McClatchey also did its homework.

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Harvard Law Professor Mark Wu argued that the value of the yuan against the dollar is no big deal in determining the U.S. trade balance in China in an NYT column. His argument is bizarre to say the least.

First he argues that the value of the yuan has little to do with the ability of the U.S. to export to China. He points out that exports to China grew at a more rapid rate in the years from 2002 to 2005 when the yuan did not appreciate than in the years from 2005 to 2008 when the value of the yuan rose by almost 20 percent against the dollar.

This is true, but the problem is that the very low base in 2002 makes percent change a very misleading measure. The increase in exports from 2002 to 2005 was $19.1 billion, from $22.1 billion to $41.2 billion. Exports increased by $28.5 billion from 2005 to 2008 to $69.7 billion. The more obvious metric would be the increase as a percent of U.S. GDP, which was considerably larger in the second period.

If one was just looking at percent changes then the near doubling of imports in the three years when the yuan did not rise in value is a striking contrast to the increase of just over 40 percent in the three years in which the yuan rose by 20 percent. Of course a full model would consider relative price changes and other factors, but it takes some serious data abuse to use export volumes to argue that exchange rates don't matter.

The other arguments are equally off-base. Wu claims that if the yuan rose against the dollar then we would simply import more from Cambodia, Vietnam and other countries. There are two problems with this argument. First the list of competing countries is not nearly large enough to replace China as a source of imports. If imports from China fell by a third, this would be roughly equal to Vietnam and Cambodia's combined GDP. The other flaw in this logic is that countries like Vietnam and Cambodia target the value of their currency against the yuan. When China abruptly raised the value of the yuan in 2005, a wide range of countries followed suit. It is likely that further increases in the yuan would also be matched by rises in other currencies leaving the relative valuation of their exports little changed. (If these countries were just interested in gaining more of a competitive advantage of the yuan, they could devalue their currency any day of the week.) 

The final point that Wu makes is that only 15 percent of our exports compete directly against Chinese exports in third markets. This is likely true, but by itself this is already a large volume of trade. Furthermore, this percentage is rising rapidly as China moves into more upscale manufacturing sectors. The share of exports that compete with Chinese goods likely would have been close to zero five years ago.

In short, there is not much of a case here. Economists generally believe that relative prices matter and the exchange rate is a major determinant of relative prices. (Do tariffs of 20 percent matter? The Chinese sure think so.) Mr. Wu's column gives us little reason to discard standard economics.

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The United States remains the world's number one economic and military power. This means that when President Obama sits down with many heads of state, the list of concerns that he presents is essentially a shopping list that he expects his counterpart to make good on. In many cases, the head of state of a country heavily dependent on the United States will have little choice but to deliver on the items on the list.

This is not true with China. While not yet the equal of the United States in either economic or military power, it is certainly a formidable enough power that the United States cannot simply dictate to it. This means that when it gives China a list of issues, it cannot reasonable expect China to agree to U.S. terms on all them. Therefore, when President Obama meets with China's President Hu Jintao this week, he will have to emphasize some things on the U.S. list while downgrading the importance of others.

For example, President Obama may emphasize enforcement of the patents and copyrights of U.S. companies like Pfizer and Microsoft. Or he may emphasize market access for financial service companies like Goldman Sachs and Citigroup. The emphasis on these issues may imply that concerns over items, like the value of the yuan, get less attention.

The issue of trade-offs is not mentioned in the NYT's stage setting for the meetings. This omission is striking since this priority setting obviously must be central in the administration's preparations. Surely the NYT could have contacted some experts on U.S.-China relations even if it could not find anyone in the administration who was prepared to discuss its priorities.

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USA Today had a piece today noting the rise in temporary unemployment and warning that it may be permanent. It is worth noting that temp employment had fallen by more than 30 percent in the downturn. While there has been some upturn in temp employment in recent months, it is still down by more than 15 percent from pre-recession levels. Add a comment