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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In years past news reports regularly repeated auto company assertions that their UAW workers earned in excess of $70 an hour. Thankfully this inaccurate claim seems to have been largely missing from news reports in recent months.

But, now it is back in the NYT. Our old friend arithmetic can show the problem. We know that the average UAW worker gets roughly $28 an hour in pay. (This is on the old pay scale, many new workers get as little as $14 an hour.) This leaves us with at least $42 an hour going to health insurance, pensions, and other benefits. With a 2000 hour work year this would imply $84,000 a year going to these benefits.

UAW workers do get good health care benefits, but does the average benefit exceed $20,000 a year? That seems pretty unlikely. The pensions are also comparatively generous, but it is a safe bet that GM is not contributing more than $25,000 a year to their workers' pensions on average.

The way that the industry got their $70 plus an hour figure was by including the cost of payments for retirees (e.g. health care benefits for already retired workers) and averaging them over their current workforce. This may be useful for the companies accounting, but it has nothing to do with what current workers actually receive in wages and benefits.

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That's what AP told readers today. Tomorrow we will no doubt find that many scientists believe that the earth is round and that humans evolved from more primitive primates. Stay tuned. Add a comment

The Post had a front page piece that highlighted efforts to cut pensions for state and local workers. The piece told readers that there is declining support for public sector workers because many people resent the fact that they have been forced to take pay cuts while public sector workers often have had their pay and benefits protected.

It is worth noting that major media outlets, like the Washington Post, routinely highlight and often exaggerate the pay and benefits received by public sector workers. In contrast, they deliberately mislead their audience about the extent of public support for major Wall Street banks.

For example, media outlets have repeatedly highlighted the fact that most of the TARP loans to the banks have been repaid without pointing out that these banks benefited enormously from having access to trillions of dollars in loans and loan guarantees at below market interest rates. Without these guarantees Goldman Sachs, Citigroup, Morgan Stanley, Bank of America and many other large banks would have gone bankrupt. Their shareholders would have lost hundreds of billions of dollars, freeing up wealth for non-Wall Street America. And their top executives would not be drawing pay in the tens of millions of dollars (@100 public sector worker pensions).

Major media outlets have acted almost as though they were conducting a political campaign. They have flooded the public with reports minimizing the cost to the public of the Wall Street bailouts while putting out endless stories (many largely false) about overpaid public sector workers.   

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Thomas Friedman devoted his column this morning to criticize an effort by the oil firms to roll back environmental regulation in California. The effort takes the form of a referendum that would delay rules requiring greater energy efficiency until the unemployment rate is below 5.5 percent.

While this sequence appears to be motivated by a concern for California's economy, the logic goes in the opposite direction. In periods of high unemployment investments in more efficient technology have very little cost to California since they are likely to employ workers who would otherwise be idle. In fact, by requiring California firms to invest in clean technology the regulations could well be net job creators.

By contrast, in standard economic theory environmental regulations will pull workers away from other sectors in periods of full employment. This would raise costs and therefore reduce total output and employment. From an economic standpoint it would make more sense to only require firms to take steps to reduce emissions when the unemployment rate is above 5.5 percent rather than below.

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What do conservatives have against reality? That is undoubtedly the question that readers of David Leonhardt's Economix blogpost on the revaluation of China's currency will be asking. Leonhardt turned the post over to Derek Scissors of the Heritage Foundation.

Mr. Scissors argues that the rise in the value of the Japanese yen in the 80s had little to do with the decline in the U.S. trade deficit with Japan. Scissors argued that the trade deficit just shifted to China. He claims that the main reason that the deficit fell in the 80s was the slowdown in growth and the onset of the recession.

There is a small problem with that argument. The trade deficit dropped while the economy was still growing rapidly. It fell from a peak of 3.1 percent of GDP in the 2nd quarter of 1987 to less than 2.0 percent of GDP in the 2nd quarter of 1988, as shown in the graph below. This quarter was sandwiched between two quarters of growth above 5.0 percent. The deficit declined further to less than 1.4 percent of GDP by the 3rd quarter of 1989, when the economy grew 3.2 percent. 

quarterly-gdp

 

In short, the recession cannot explain the decline in the size of the trade deficit because the deficit declined while the economy was still growing rapidly. The more obvious explanation is the decline in the value of the dollar that was negotiated at the Plaza Accords in 1986. This is yet another example of the facts being biased against conservatives.

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That would be Ben Bernanke, who by his own claim brought us to the edge of a second Great Depression. The Post told readers that Bernanke:

"has aimed to use the weight of his words to try to give more momentum to efforts to reduce the budget deficit in the medium to long term."

It would have been reasonable to note the irony that a person who failed so miserably at his job -- causing tens of millions to be unemployed or underemployed, and also causing deficits to soar -- would lecture Congress and the public about deficits.

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That's what readers of Andrew Ross Sorkin's column on AIG are all asking, but arithmetic and Mr. Sorkin are rarely found in the same room. Of course the real story of AIG and the other bailouts is that the government used its credit to keep the company, and more importantly its creditors and top executives in business.

Sorkin apparently assumes his readers do not understand that below market loans and guarantees have enormous value. Of course if the government had made the same commitments to the owner of a corner hot-dog stand as it did to AIG, this person would be as rich as Bill Gates right now. Mr. Sorkin could then write a column about how the loans and guarantees didn't cost the government anything (since the hot-dog stand owner had repaid them), but NYT readers know better.

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According to the New York Times, Scott Walker, the Republican candidate for governor is worried that they can't. Of course, the NYT did not make the issue quite this clear to readers.

It told readers that Mr. Walker is worried that subsidies to high speed rail could cost Wisconsin $7-$10 million a year. It would be necessary to divide by Wisconsin's population of 5.6 million to realize that an expenditure of 2.8-4.0 cents a week is a high item on the Republican gubernatorial candidate's list of concerns.

(Thanks C. Mike for catching my initial error.)

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The NYT discussed the issues involved in currency pricing and trade protection with reference to China and other countries. The article raised concerns that growing protectionism could hurt economic growth, but it never noted that most highly educated professionals already benefit from extensive protectionism. The inequality resulting from their protection is one of the key factors motivating protectionist sentiments in the United States.

It also raises the prospect that a higher valued yuan would seriously damage China's economy. It would have been helpful to note the importance of China's exports to the U.S. to its economy. China's good exports to the U.S. are approximately equal to 6 percent of its GDP. Even a sharp rise in the yuan is unlikely to reduce its exports by more than one-third (2 percent of GDP) over a 2-year period. This is currently equal to less than 3 months of growth in China.

It is also worth noting that China's exports to the United States fell by 17.4 percent from the third quarter of 2008 to the third quarter of 2009. China was able to offset the loss of export demand from the United States and elsewhere with a massive stimulus package. As a result, its economy grew by more than 9.0 percent in 2009.

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Since some folks are determined to spread nonsense about the TARP, I suppose it's necessary for those of us not on Wall Street's payroll to keep trotting out the truth. The basic points of the TARP backers are:

1) it didn't cost us anything;

2) it was necessary; and

3) Dodd-Frank ensures that it will never happen again.

 

Claim 1 is just absolute nonsense. We gave the banks trillions of dollars worth of loans and loan guarantees through the TARP, the Fed and the FDIC at way below market rates at the time. It is true that most of this money was paid back, so the government got back what it lent, but that does not mean there was no cost to the taxpayer.

Without TARP and the other government bailout programs, Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, and many other large banks would have gone bankrupt. Their top executives would be unemployed today and their shareholders would have lost hundreds of billions of dollars in wealth, as would their creditors.

Thanks to their access to below market credit in their time of need, courtesy of the taxpayer bailouts, the Wall Street executives are still pocketing tens of millions a year and the banks are again making record profits. Had the market been allowed to work its magic, this wealth and income would have been available for the rest of society. The financial sector will continue to be a drain on the rest of the economy because the government saved it from the consequences of its own recklessness.

 

Claim 2 implies that the economy would have collapsed absent the TARP. It assumes an absurd counter-factual: that the government and the Fed would have allowed the banks to collapse and then done nothing in response to boost the economy. Of course that would have been a catastrophe, but it is simply a lie to claim that our options were either doing TARP or never doing anything.

There is no reason that we could not have let the banks go down in the cesspool of junk loans that they had fostered and then flooded the system with liquidity after the fact to boost the economy. This is the serious alternative scenario -- not the permanent do nothing scenario that TARP proponents have created.

 

Claim 3 ignores the fact that we have bigger too-big-to-fail banks than we did before the crisis. Most of the largest banks are larger today than they were before the crisis because we allowed a series of major mergers (e.g. J.P. Morgan Chase with Bear Stearns and Bank of America with Merrill Lynch) as a result of the crisis. It is very unlikely that the future regulators will be any more willing to tolerate the collapse of these giants than was the 2008 crew.

Resolution authority may give the regulators more flexibility in a crisis in the future than they had in the 2008 crisis, but the big problem was that they wanted the creditors paid off, not that they didn't. For example, the Treasury Department/Fed made good on 100 percent of AIG's debts, instead of trying to impose haircuts on its creditors. There is no reason to expect regulators to act any differently in future crises.

In short, the TARP opponents are absolutely right. TARP was an unnecessary giveaway to the Wall Street crew that was responsible for the financial crisis.

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The Post had a good article on how TANF, the main federal welfare program, has not expanded significantly in the wake of the downturn, even as the need has increased enormously. At one point the article tells readers that:

"Despite urging from the Obama administration and welfare directors around the country, lawmakers decided not to extend the emergency welfare money, which gave states more than $4 million, in part to subsidize wages to help people go to work."

Actually, the law would have provided more than $4 billion, not $4 million. However, it would have been helpful to express these sums relative to the size of the federal budget so that readers would know how large they are. The $4 million figure would be equal to 0.00011 percent of federal spending. The $4 billion number is equal to 0.11 percent of federal spending.

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That was what he told Post readers in his column. He talked about President Obama's deficit commission as "the last hope for gaining control of government spending," telling readers that:

"The problem is so big as to seem insurmountable: $13 trillion of debt, now equivalent to 60 percent of gross domestic product. In 10 years, that is projected to increase to 90 percent of GDP, at which time we'll be making $1 trillion a year in interest payments." 

People with more familiarity with numbers would note that the country has had larger debt to GDP ratios in times past. They would also point out that that the $1 trillion in interest payments is less than 5 percent of projected GDP in ten years. The government faced the same interest burden in the early 90s.

Furthermore, unless the Fed acts irresponsibly (a big if, it did allow the $8 trillion housing bubble that wrecked the economy), it will own much of the government's debt. In this case, the interest will be paid to the Fed, which in turns will rebate it to the Treasury leaving no net interest burden. Currently the Fed is rebating an amount equal to almost 40 percent of the interest paid by the Treasury. Reporters at most newspapers would be expected to understand this relationship.

It is also not clear what Milbank thinks is out of control about government spending (maybe he sees flying saucers also). Government spending has mostly increased to support the economy in response to the worst downturn since the Great Depression. His column suggests that he may be unaware of this downturn.

 

 

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It is really simple to use purchasing power parity measures of GDP. This makes it hard to understand why the NYT and other papers use exchange rate measures. The exchange rate measures are essentially meaningless, whereas the purchasing power parity provide some basis for assessing living standards.

The NYT told readers that per capita income in Malaysia is about $7,000. According to the CIA Factbook Malaysia's per capita income is $14,900.

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The Washington Post headlined an article on the release of data August consumer spending: "with consumers skittish, hopes muted for holiday sales." The article goes on to describe weak consumer sales, which are explained by pessimistic attitudes about the economy.

In fact, consumer sales are actually quite strong given the level of income. As the article notes, the saving rate for August was 5.8 percent. This is considerably below the average for the 50s, 60s, 70s, and 80s. In each of these decades the savings rate was considerably above 8.0 percent.

The saving rate began to drop toward the end of the 80s and into the 90s as a result of the wealth effect generated by the stock market bubble. It fell to zero as a result of the wealth effect from the housing bubble. Now that most of this bubble wealth has disappeared, it would be expected that the savings rate would return to its normal level or possibly even rise above it, as households attempt to make up for lost wealth. This is especially likely given that the huge cohort of baby boomers is approaching retirement with virtually no wealth and there is widespread talk of cutting their Social Security benefits.

It is remarkable that the Washington Post could not find any economists familiar with the wealth effect on consumption. It is one of the most basic relationships in economics.

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The Washington Post is a huge fan of protectionism. That is what readers can conclude from the fact that it conceals the protectionist aspects of trade deals like the trade agreement between the United States and South Korea. Provisions increasing protection for U.S. patents and copyrights are an important part of this trade agreement. However, the Post has devoted almost no space to mentioning these provisions, which will raise costs for Korean consumers and slow growth there.

Instead, the Post constantly mischaracterizes the deal as a "free-trade" agreement (as opposed to a "trade agreement") thereby wasting space and spreading inaccurate information.

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This is striking, since most of the country falls into the critics category. Apparently, the NYT doesn't know any TARP critics.

If they did, and they talked to them for their article on the end of the TARP, the critics likely would have told the NYT that the TARP preserved Wall Street as we know it. Had the market been allowed to do its magic, Citigroup, Goldman Sachs, Morgan Stanley, Bank of America, and many other fine institutions would have been bankrupt. This would have redistributed more than a trillion dollars of wealth from the shareowners, the creditors, and the top executives to the rest of the country.

By providing them with loans at below market interest rates, the TARP and the much larger Fed and FDIC bailouts, allowed the banks to survive the crisis created by their own recklessness. This was like giving away food during a famine. The banks have repaid the food with interest now that the harvest has come in, but to pretend that we did not do them an enormous favor at enormous cost to taxpayers (we could have rescued others with these loans) is absurd.

The claim that we averted a second Great Depression with the TARP is a great children's story, but no one has any clue how the decision to not do the TARP would have necessitated a second Great Depression. The first Great Depression was the result of a decade of bad policy, not just an initial policy failure at its onset.

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It might be the case that you don't need a weatherman to know which way the wind blows, but the NYT is telling us that we need a philosopher to guide our tax policy. An article on the debate over extending the Bush tax cuts told readers:

"As the political battle drags on, however, it has also veered into a more basic matter of fairness, whether a person who earns more than $200,000 a year should be taxed at rates similar to those who make $5 million."

Umm, really? Is the rate at which people are taxed, as opposed to the amount they pay in taxes, really such an important political issue? Do most people even know the rate at which they are taxed? Following the 1986 tax reform, tens of millions of middle income workers paid the same 28 percent tax rate as the very richest people in the country. There was not a big philosophical debate over this issue at that time. (We were lowering rates for the wealthy back then, not raising them.)

The more obvious issue is how much tax people will be paying. The answer for the questionably rich people who are the focus of this article (people with incomes between $250,000 and $500,000) is not very much. The Joint Tax Committee in Congress calculated that the average tax hit for taxpayers with income in this range would be $400 a year. That sort of tax hit would not seem to require very much philosophy.

 

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USA Today has an interesting article about how Grand Rapids, Michigan has gotten a boost to its economy from a modest arts prize awarded each year by a private donor. This raises the issue of whether some communities may use similar methods to more systematically provide economic development. A local government could adopt something like an artistic freedom voucher system to encourage creative workers (e.g. musicians, writers, artists, etc) to live in their city. Since these people would want to get support from the local population through the voucher system, they would have a strong incentive to perform frequently. This could turn a city into an arts mecca. Add a comment
Princeton University Professor Uwe Reinhardt does not believe that it is possible to keep per person health care costs from rising from twice the average in the countries with longer life expectancies than the United States to more than four times the average in countries with longer life expectancies. Of course there are obvious ways to get costs done, such as the $270 billion a year that could be saved by eliminating government patent monopolies for prescription drugs and adopting a more efficient mechanism for financing drug research.

But the easiest mechanism to eliminate these enormous price differentials would be to simply open the market to international trade and allow people in the United States to take advantage of the more efficient health care systems in other countries. Too bad the NYT's economists don't believe in free trade.
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That's right NYT columnist Ross Douthat told readers today that: "And as everybody knows, the only way to really bring the budget into balance is to reform (i.e., cut) Medicare and Social Security."

Of course everybody who knows anything about the budget knows full well that this is not true. The budget problem is almost entirely a story of a broken health care system. If the United States had the same per person health care costs as any of the countries which enjoy longer life expectancies than the United States, then it would be facing long-term budget surpluses, not deficits. 

Everybody also knows that Social Security does not contribute to the deficit. It is financed by a separate designated tax. The most recent projections from the Congressional Budget Office show that this tax will be sufficient to fully fund benefits through the year 2039 with no changes whatsoever. 

Given the health of the program, it is not clear why anyone would want to cut Social Security except to take money from ordinary workers -- a major sport in Washington. It would make more sense to default on the national debt.

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Howard Kurtz, the Post's media critic, had a lengthy profile of NYT columnist and Princeton economist Paul Krugman in the paper today. At one point Kurtz told readers that:

"Many other White House officials [other than Larry Summers] view Krugman as an irritant who has become predictable and whiny in his criticism."

Actually, Mr. Kurtz doesn't know how other White House officials actually view Krugman, he only knows how they say they view Krugman. Since Krugman has been a harsh critic of many Obama administration policies, the unnamed White House officials would have good reason to try to discredit Krugman to the public regardless of whether or not they thought these criticisms were accurate.

This is why a competent reporter would write that:

"White House officials say they view Krugman as an irritant who has become predictable and whiny in his criticism."

This would accurately convey information to readers instead of serving the White House public relations effort.

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