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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Suppose the United States gives a subsidy equal to 30 percent of the purchase price for people who buy imported goods. It also taxes all goods that are exported from the United States by 30 percent. This subsidy and tariff regime would likely have a substantial effect on international competitiveness.

The Washington Post does not see it that way. A front page article that discussed the production of energy efficient light bulbs, and the factors determining plant location, did not once mention currency values.

This reflects an incredible level of incompetence. It would be like discussing the Louisiana fishing industry without discussing the BP oil spill.

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That could have been the headline of an article reporting former Federal Reserve Board Chairman Alan Greenspan's negative assessment of the stimulus. But, hey this is the Wall Street Journal. Add a comment

The media are anxious to find good economic news, hence they seized on the August retail sales data as evidence that the economy is moving forward again. While the 0.6 percent reported growth in non-auto sales is somewhat better than expected, it is somewhat less impressive when we remember that the July data were revised down by 0.1 percentage point.

Also, much of the growth was driven by higher gasoline sales, which is most likely due to higher prices rather than more consumption. Non-auto, non-gas sales were 0.5 percent higher than in August than in July and just 0.3 percent about the June level. This is not exactly robust growth.

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This phrase could have appeared in a Washington Post article that noted many conservative Democrats are now supporting the extension of the tax cuts even to high income taxpayers. Instead the article attributed the switch in sentiments to concerns about a "weakening economy." It is worth noting that the congresspeople in question have not been known for their concerns about unemployment at other times. 

At one point the article asserts that: "Democrats will also take on the forces of globalization." It is not clear what taking on the forces of globalization means. Is someone who proposes a trade agreement "taking on the forces of globalization?" There seems to be some implication that the Democrats are pushing back against some predetermined "forces of globalization," but of course no such thing exists.

Everyone wants to shape globalization in certain ways. For example, the software, entertainment, and pharmaceutical industries all want to impose increased copyright and patent protection throughout the world. This could be described as attempting to "take on the forces of globalization" with much greater accuracy than the measures described in this article.

The article also refers to efforts to recover $15-18 billion in revenue over the next decade to cover the cost of various proposals. This is equal to approximately 0.05 percent of projected revenue over this period.

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This is the clear implication of a new industry funded study, even if USA Today essentially ran an ad for the pharmaceutical industry by headlining its piece: "growing problem of fake drugs endangers consumers' health." The article highlighted the fact that unauthorized copies of drugs sometimes do not meet the same standards as the official version, but also notes that: "counterfeiters are now able to fake drugs so well that even experts find it hard to distinguish the copies from the real deal." This implies that often the unauthorized versions will be every bit as good as the brand drugs.

According to the article, the study finds that the unauthorized drug market is between $75 billion and $200 billion a year, but adds: "the market is likely much bigger because many cases are hard to detect." If we assume an average prescription price of $2 (many of these drugs are sold in the developing world), then this implies that the unauthorized market involves sales of 37 billion to 100 billion prescriptions year. If 1 in 1000 of these prescriptions save a life (because the patient could not afford the authorized version), then unauthorized drugs save between 37 million and 100 people a year.

In an act of unbelievable sloppiness this article fails to distinguish between unauthorized copies, where the buyer knows that they are not getting the brand drug and genuine counterfeits, where the buyer is deceived about the drug they are buying. It also would have been helpful to include a discussion of alternatives to patent support for prescription drug research. Government imposed patent monopolies are the root cause of the high prices that create a huge market for unauthorized copies of drugs.

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The Washington Post likes to run columns that are chock full of mistakes so that readers can have fun picking them apart. That is why George Will's columns appear twice a week. Let's have a little fun with the latest, which is an attack on President Obama's economic agenda.

First, Will is anxious to tell readers that Democrats are telling the public that stimulus did not work because many think we need more stimulus. Actually, people who think we need more stimulus simply note that the stimulus was helpful, but not large enough for the task. According to the Congressional Budget Office, the stimulus added between 1.7 and 4.5 percent to GDP since its enactment (that's between $240 billion and $740 billion in additional output). It also lowered the unemployment rate by between 0.7 and 1.8 percentage points.

This was not enough to fully offset the damage from the collapse of an $8 trillion housing bubble. The collapse wiped out more than $1.2 trillion in annual demand (roughly $600 billion in lost consumption and $600 billion in lost construction). By comparison, the stimulus injected about $300 billion a year into the economy in 2009 and 2010. Roughly half of this was offset by cutbacks at the state and local level. So, we were looking at a net increase government sector stimulus of $150 billion, which was being used to counteract a decline in private sector demand of $1.2 trillion. 

Is anyone surprised that this was not enough? Will's conclusion that stimulus does not work is like seeing someone throw a few buckets of water on their burning house and then telling the fire department not to waste time with their hoses, because obviously water will not be effective against the fire.

Will then goes on to tell readers that Herbert Hoover was a great supporter of fiscal stimulus. Actually, real spending did increase under Hoover, but this was primarily because of the huge deflation of the era. In any case, the facts do not support Will's claim that:

"Real per capita federal expenditures almost doubled between 1929, Hoover's first year as president, and 1932, his last."

Actually, real federal expenditures rose by less than 20 percent if we follow Will and take 1932 as the endpoint. If we include 1933, which was partially a Hoover budget, then the increase is still just 44.9 percent. That is substantial, but certainly not "almost doubled."

Will goes on to complain that:

"Barack Obama has self-nullifying plans for stimulating the small-business sector that creates most new jobs. He has just endorsed tax relief for such businesses but opposes extension of the Bush tax cuts for high-income filers, who include small businesses with 48 percent of that sector's earnings."

Actually, most of the businesses whose taxes will be affected by the increase will only be trivially impacted. According to an analysis from the Congressional Joint Committee on Taxation, the average tax hit from Obama's plan on filers earning between $200,000 and $500,000 (the overwhelming majority of the affected small business owners) is $400. It is unlikely that a tax increase of $400 will have a big effect on the investment or hiring decisions of a business netting $350,000 a year. 

Therefore, the answer to question posed by Will: "does this increase anyone's confidence?" is almost certainly that it probably has almost no impact on anyone's confidence since it is largely irrelevant to the decisions of the vast majority of businesses.

Finally, Will ends by making a simple mistake of logic. He wants to beat up on the Cash for Clunkers program by arguing that only 1 in 6 of the cars purchases under the program were actually induced by the tax credit, as opposed to simply moving up a purchase that would have taken place anyhow.

While one may hope for a better ratio (and others have calculated higher ratios), since spending at a time of very high unemployment is essentially free, who cares? If we did not have the cash for clunkers program, fewer people would have bought more fuel efficient cars. The unemployment rate would be higher and we would be consuming more energy and emitting more greenhouse gases. How is that good? 

Will also complains that Cash for Clunkers hit poor people by raising the price of used cars. While it definitely did raise the price of used cars, most poor people already own cars. This means that Cash for Clunkers raised the price of the cars they own. For poor car owners this picture is largely a wash, their next car will cost more, but they will get more money on a trade-in. First time buyers are unambiguously hurt, but this is a minority of the poor.



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Then they wouldn't write ridiculous things like: "our generation’s leaders never dare utter the word 'sacrifice.' All solutions must be painless." If someone told Friedman about the recession, that nearly 15 million people are unemployed, that nearly 9 million are underemployed, and millions more have given up working all together, then he would not be saying nonsense about how baby boomers are looking for painless solutions.

On this planet, the vast majority of baby boomers, who have to work for a living, are already experiencing vast amounts of pain. What planet does Mr. Friedman live on and why on earth is he given space in the NYT to spew utter nonsense?

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Apparently not, since they feel the need to constantly tell readers in the news section that the paper considers the deficit/debt to be too large. There is no information added by the inclusion of the word "ballooning" in this sentence: "The specter of a ballooning national debt has led even some of the early supporters of the cuts, including the former Federal Reserve chairman Alan Greenspan, to advocate letting them expire." 

The sentence could have been more accurate and shorter if told readers that Mr. Greenspan claims (the reporter does not know Greenspan's real views on the economy) that concerns over the national debt cause him to advocate letting the tax cuts expire. 

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The Post ran a badly confused article on unauthorized drugs and the harm they allegedly cause. The article uses the terms "counterfeit" and "fake" indiscriminately. It reports that some of the drugs bear the names of major manufacturers, indicating that many do not. Only the former can be viewed as "counterfeits."

The drugs that are not falsely sold as the products of major manufacturers are bought by people who understand that they are not buying a drug produced by a major drug company. This means that they are likely buying the drug because it sells for a price that is far below the price of the drugs sold by the major manufacturers.

For this reason, the article's assertion that:

"Experts say the global fake-drug industry, worth about $90 billion, causes the deaths of almost 1 million people a year and is contributing to a rise in drug resistance,"

is absurd on its face. The vast majority of the people buying these drugs would almost certainly not be able to afford the drugs produced by the major drug companies. If the $90 billion figure is true, then this implies that people around the world are buying tens of billions of prescriptions of unauthorized drugs. (Legal generics often sell for $4 at major retail chains in the United States. Presumably, unauthorized copies sell for much less in the developing world.)

While not all of these prescriptions involve life-saving drugs, even if just one in a thousand of these prescriptions is for a life-saving drug then the information in the article implies that unauthorized drugs are saving tens of millions of lives every year. Of course if we used a more efficient mechanism than patents to finance research then people around the world would be able to get high quality drugs at low prices.


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Wessel did not use exactly those words, but he told listeners that the only option that the Fed still has to boost the economy is to buy more long-term bonds. In 1999, when he was still a professor at Princeton, Bernanke wrote that, in similar circumstances Japan's central bank should deliberately target a higher inflation rate in the range of 3-4 percent.

This was an idea that was originally proposed by Paul Krugman and has more recently been suggested by Greg Mankiw, President Bush's top economic advisor, and Olivier Blanchard, the chief economist at the IMF. It would be interesting to know how Mr. Wessel determined that this idea is not a possible policy option.

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That's right, the Dallas Cowboys scored 14 points. In a separate game, the New York Giants got 9 points. This is what the Post's sports section would look like if it reported on football the same way the business section reports on trade.

An article on a Steelworkers' complaint against China for unfairly subsidizing its clean energy industries concluding by reporting that:

"Undersecretary of Commerce for International Trade Francisco Sanchez noted that the overall numbers showed 'very bright spots' for U.S. exports to fast-growing Asian and Latin American nations. He added that exports throughout major southeast Asian nations were up 40 percent this year amid strong regional economic growth."

The employment impact on trade is determined by the trade balance, as Mr. Sanchez presumably knows. The trade deficit with most developing countries has been worsening over the last year. For example, the trade deficit in goods with India was $2.8 billion through July of 2009, the deficit with Thailand was $6.4 billion. The corresponding numbers for 2010 are a deficit of $6.0 billion with India and $7.4 billion with Thailand. In other words, the trends are going the wrong way, the United States is losing more jobs because of trade, not fewer.   

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In another fascinating piece of creative economics David Brooks tells us: "we can get distracted by short-term stimulus debates, but those are irrelevant by now." Okay folks, just get used to 9.6 percent unemployment, Mr. Brooks says that there is nothing can be done.

The column is chock full of observations that most people did not know, probably because they are not true. For example, Brooks tells us that if more people follow the recommendation of Michelle Obama and go into teaching and service occupations then it will make the country poorer.

That's an interesting thought. Would the country be worse off if most teachers came from the top quartile in their classes rather than further down the ladder? I certainly did not know this.

As for other service occupations, the country certainly could have used more competent and honest economists. We are losing more than $1.4 trillion a year (@$19,000 for a family of four) due to the recession caused by the collapse of the housing bubble. If we had more competent economists, then the bubble never would have been allowed to grow to such dangerous levels. We can call this $19,000 in lost output a year the "incompetent economist tax." (By way of comparison, toward the middle of next year the incompetent economist tax will exceed the size of the 75-year projected shortfall in the Social Security trust fund.)

Competent economists could make us richer in other ways. For example, we spend close to $300 billion a year on prescription drugs. These drugs would cost roughly one-tenth as much if patent monopolies did not allow drug companies to sell their drugs at prices far above their competitive market price. Competent economists could develop more efficient mechanisms for financing prescription drug research, thereby saving us hundreds of billions of dollars a year.

Even Mr. Brooks' key concern, a lack of people going into engineering, could be addressed in large part of a bit of competent economics. Manufacturing in the United States is at an enormous competitive disadvantage because of the over-valued dollar. If the dollar is 30 percent over-valued, then it means that we are effectively providing a subsidy of 30 percent for imports and imposing a tariff of 30 percent on exports. As people who understand economics know, the over-valued dollar is the main reason that we have a trade deficit.

If we got the dollar down, then our manufacturing industry would be much more competitive. This would make careers in engineering more attractive relative to the alternatives. Then we would have more people entering engineering and David Brooks would be happy.

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BTP doesn't ordinarily focus on blogs, but Paul Krugman's blog is widely read, and most of us expect him to be right, so it is a big deal when he gets an important point wrong. This morning he told readers that part of the explanation for Japan's decline in per capita income relative to the U.S. is due to its aging population. He argues that his has led to a drop in the percentage of working age people in the population, which has led to a drop in per capita output.

A quick trip over to the OECD's data base tells a somewhat different story. While the ratio of working age people to population did fall in Japan over this period, we also see a rather dramatic decline in average hours worked per worker. Average annual hours per worker dropped by 7.0 percent from 1992 to 2008.

This indicates that there was no shortage of potential labor in Japan over this period. If Japan had pursued policies that generated demand, there is no reason to believe that its workforce would not have supplied the necessary labor, inspite of the decline in the percentage of working age people in the population. In other words, Japan's economy was demand constrained, not supply constrained.

This doesn't mean that there are not circumstance under which Japan's population could become supply constrained, it's just that these circumstances did not exist in the stagnation of the last 18 years. This is sort of like a baseball team that is reduced by injuries to 23 players on its roster (rather than the usual 25), which gets beat 24-2 as a result of an awful performance by its starting pitcher and the early relievers. It may matter at some point that the team only has 23 players to draw upon, but that would not have been the issue in this particular loss.

This point is important because there is a whole industry devoted to scaring the public about the demographic changes that the United States is now experiencing. While these changes will certainly affect the economy, they will not be the main determinants of living standards. The success or failure of economic policy will dwarf the impact that projected decline in the ratio of workers to retirees will have on well-being.  

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The NYT has a front page piece on how low interest rates are hurting people who live on their saving. While interest rates are low, it would have been worth noting that the inflation rate is also very low. This is important to take into account in this sort of discussion, since the inflation rate had typically been higher in prior decades.

The real interest rate, the interest rate minus the inflation rate is the true return to savers. If the interest rate is 3 percent and the inflation rate is 3 percent, then the real value of a person's savings would erode by by 3 percent a year, if they spent all of their interest. Currently the inflation rate is close to 1 percent, which means that the real value of savings is only be reduced by 1 percent annually if a person spends their interest.

Real interest rates are low at present, which is a deliberate policy, but just reporting on the nominal rates presents a distorted picture of the situation facing savers.


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David Leonhardt has an interesting piece on house prices but ends up making a serious logical error. He argues that house prices typically keep pace with income, meaning that they have risen more rapidly than inflation. He bases this assessment on the fact that the portion of income that has been devoted to to housing has remained constant over roughly the last 80 years.

There is a logical problem in this analysis. In principle, the issue is the movement of a the price of a house of the same quality, not the amount that people actually spend on housing. If the price of a house of the same quality rises in step with income, and the share of income devoted to housing remains constant, then this logically implies (i.e. there is no way around the conclusion), that the quality of housing has not increased over this period.

This would mean that the homes that people are buying today are no bigger or better than the homes that people bought 80 years ago. This contradicts an enormous amount of data and common sense. It is unlikely that anyone would seriously argue this case. Therefore, we can conclude that house prices have not kept pace with income growth. 

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NPR told its listeners that they are this morning in its top of the hour news segment. It described President Obama's proposal to allow businesses to have 100 percent expensing of new investment as a "jobs program." In fact, the vast majority of the investment that will qualify for this credit would have taken place in any case. 

I am petitioning NPR to have my plan for tax cuts to Dean Baker labeled as a jobs program.

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The NYT says it isn't. The context is a discussion of President Obama's new stimulus program. The article tells readers that the word "stimulus,"

"has taken on negative political connotations since the original roughly $800 billion recovery plan and subsequent additions have failed to push unemployment down substantially."

According to the Congressional Budget Office the stimulus has reduced the unemployment rate by between 0.8 and 1.7 percentage points. This clearly was not enough to get the economy back to full employment, but arguably it was still substantial. People would likely view the economy very differently today if the unemployment rate was over 11 percent.

Arguably, the major cause for disenchantment with the stimulus was the fact that it was hugely oversold. The Obama administration badly underestimated the severity of the downturn and claimed that the stimulus would be sufficient to bring about a recovery.

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It is also equal to about 4 percent of the $1.2 drop in annual demand (@ $600 billion in lost consumption and $600 billion in reduced construction) due to the collapse of the housing bubble. These would be items worth including in discussions of President Obama's latest infrastructure proposal for those wanting to know the impact it will have on the budget and the economy. Add a comment

It appears to be a standard ritual to cite Japan's declining population as an evil in all discussions of things Japanese. Today the NYT refers to the declining population as one of the factors making life bad for young workers.

Actually, a declining population is likely a plus for young workers. It means less competition for employment than would otherwise be the case. Falling population should also lead to improvements in the quality of life that will not be picked up in conventional economic measures. For example, its transportation system will be less heavily utilized, allowing people to reduce the time spent traveling to work and for other purposes.

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The NYT had an article on a coming dispute over EU farm subsidies in its next budget. It told readers:

"Agriculture subsidies account for more than 40 percent of the E.U. budget — worth more than €130 billion, or $167 billion, each year."

Readers probably assumed that this sentence was saying that the E.U.'s agricultural subsides are 130 billion euros each year. In fact, that number was referring to the total E.U. budget. Agricultural subsidies come to a bit over 50 billion euros each year. 

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That should have been the headline of an article about Donald Kohn who is leaving the Fed's board of governors. Kohn said that he doesn't think the Fed could have done anything different to prevent the worst downturn in 70 years because:

"Everybody — but certainly the regulators and the markets — became complacent about the housing market and whether housing prices could ever decline across a broad front.”

He still doesn't know that the housing crash was entirely predictable? Why are the taxpayers paying for this guy's pension?

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