Beat the Press is Dean Baker's commentary on economic reporting. Dean Baker is co-director of the Center for Economic and Policy Research (CEPR).

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The answer is that they would get significant cuts in revenue. The Washington Post, which is known for its problems with logic and economics, never made this point as it discussed the possibility of a mass exodus of physicians from the Medicare program. The Post uncritically presented complaints about Medicare's compensation schedule from Cecil B. Wilson, the president of the American Medical Association that Medicare does not pay them enough money. (The article was headlined: "Physicians Face Painful Decision on Medicare.")

While it is possible that any individual physician can make more money by taking patients from private insurers rather than Medicare patients, physicians in aggregate could only make up for the revenue lost by not seeing Medicare patients if there was a large pool of individuals with money or high-paying insurers who do not currently have access to doctors. Of course, people with money in the United States are already seeing doctors, so if physicians en masse turned away from Medicare then they would simply have fewer patients. (This may be the painful decision referred to in the headline.)

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A Washington Post article discussing the risks associated with another round of quantitative easing raised the possibility that the Fed could lose its credibility if the program does not lead to the intended growth. It implies that the loss of credibility would be a major harm.

It is worth noting that the whole economic collapse came about because of the Fed's failure to notice and/or do anything about an $8 trillion housing bubble. Given this enormous failure, it is not clear how much credibility it currently enjoys among people who follow the economy.

The article also raises the risk that a precipitous fall in the dollar, "could be disastrous." It is difficult to see a scenario in which even the steepest falls in the dollar would be disastrous for the United States. U.S. exporters would suddenly become hyper-competitive (we still export $1 trillion a year in goods and services), while domestically produced goods would drive imports from the shelves. This scenario would likely be disastrous for our trading partners, which is why they would almost certainly intervene in currency markets to prevent the dollar from having a steep and sudden tumble.

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On Friday, Morning Edition featured a debate on trade between former Bush administration economist Mathew Slaughter and Thea Lee, an economist with the AFL-CIO. [Disclosure: Ms. Lee is a personal friend.] The discussion allowed Mr. Slaughter to have the last word, in which he proclaimed:

"One is most of the research to date that Thea cites has concluded that it's technology innovations of many kinds, that tend to favor demand for skilled workers that has put pressure on the wages of so many Americans.

So from a policy perspective, a question is, well, what do we want to do about that? Do you want to get rid of the computers that we've created over the past 30 or 40 years?"

Actually the economic research does not provide a compelling case that technology, rather than trade, has been the major factor driving inequality. The biggest rise in inequality between college and non-college educated workers occurred in the 80s, before the explosion of computerization and the uptick in productivity growth. In the 00s, there was no increase in the college-non-college pay gap. The only real gainers in that decade were workers with advance degree. This pattern in inequality is difficult to reconcile with a technology story.

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This is not a joke (at least not on my part). David Broder, the longtime columnist and reporter at a formerly respectable newspaper, quite explicitly suggested that fighting a war with Iran could be an effective way to boost the economy. Ignoring the idea that anyone should undertake war as an economic policy, Broder's economics is also a visit to loon tune land.

Broder tells readers:

"Can Obama harness the forces that might spur new growth? This is the key question for the next two years.

What are those forces? Essentially, there are two. One is the power of the business cycle, the tidal force that throughout history has dictated when the economy expands and when it contracts.

Economists struggle to analyze this, but they almost inevitably conclude that it cannot be rushed and almost resists political command. As the saying goes, the market will go where it is going to go.

In this regard, Obama has no advantage over any other pol. Even in analyzing the tidal force correctly, he cannot control it.

What else might affect the economy? The answer is obvious, but its implications are frightening. War and peace influence the economy."

Sorry Mr. Broder, outside of Fox on 15th the world does not work this way. War affects the economy the same way that other government spending affects the economy. It does not have some mystical impact as Broder seems to think.

If spending on war can provide jobs and lift the economy then so can spending on roads, weatherizing homes, or educating our kids. Yes, that's right, all the forms of stimulus spending that Broder derided so much because they add to the deficit will increase GDP and generate jobs just like the war that Broder is advocating (which will also add to the deficit).

So, we have two routes to prosperity. We can either build up our physical infrastructure and improve the skills and education of our workers or we can go kill Iranians. Broder has made it clear where he stands.

 

 

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The Washington Post (a.k.a. "Fox on 15th Street) clearly is on the opposite side of the Rally to Restore Sanity. In addition to David Broder's call for a war to stimulate the economy, Fred Hiatt, the paper's editorial page editor, demanded that President Obama lie to the American people.

In an article calling on President Obama to show leadership, Hiatt lists at the top of things that Obama would do if he were acting as a leader:

"He would tell Democrats that Social Security will go broke without reform." Of course this is not true. According to the Congressional Budget Office the program is fully solvent for the next 29 years with no changes whatsoever and with changes no larger than were put in place by the Greenspan commission in 1983 it can be kept solvent in the 22nd century.

Hiatt also complained that Obama has demonized business. This apparently stems from the difficulty of getting information in distant downturn Washington. Hiatt is apparently unaware of the fact that even as unemployment remains at near double-digit levels, corporate profits have returned to their pre-recession peak. In other words, business is doing just great under President Obama's leadership, even he has occasionally said some nasty things about them.

The column also included the bizarre assertion that: "unchecked, deficits will depress Americans' standard of living deficits threaten the country's standard of living." Of course by far the biggest threat to Americans' standard of living is the near double-digit unemployment that the country is now experiencing. The deficits being run today impose zero burden on the country since they harness resources that would otherwise be idle.

Over the long-term, the deficit problem is simply the problem of a broken U.S. health care system as every policy analyst knows. For some reason the Washington Post is determined to hide this simple fact. 

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Come on folks, we had the second largest inventory build-up in history. Pull that out and final demand grew at just a 0.6 percent annual rate.

Does anyone thing that inventories will continue to grow at this rate? This means that instead of adding to growth inventories will subtract from an economy that has almost no forward momentum. This is all GDP accounting 101. This should be the headline on the 3rd quarter numbers.

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Hell no, I'm not kidding. Here it is:

"the public's real anxiety is about values, not economics: the gnawing sense that Americans have become debt-addicted and self-indulgent."

This is really priceless. There are more than 25 million people unemployed, underemployed or who have given up looking for work altogether, but they are not concerned about economics. They are worried about values.

Okay, I will stop with the ridiculing of David Brooks, I know it's cheap fun. But, I do have to point out one other real winner in this column:

" Obama came to be defined by his emergency responses to the fiscal crisis." 

Yes, the column says "fiscal." Is this the mother of all Freudian slips or what? Brooks somehow wrote "fiscal," when he obviously meant "financial." Neither he nor his editor caught it on a second reading. You couldn't ask for a better example of the elite's fixation with making this into a fiscal crisis. The Wall Street boys wrecked the economy with their greed and ineptitude and now they intend to make ordinary workers pay for it with cuts to Social Security and Medicare. Talk about a crisis of values.

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Apparently the Post's reporters have been able to get access to information about France's pension laws. It wrongly reported that its pension cutbacks raised the retirement age from 60 to 62. In fact, this is the age of early retirement, which is comparable to the age 62 minimum in the United States for early Social Security benefits. The age for getting full benefits in France is rising from 65 to 67 under the new law.  Add a comment

News travels slowly in Washington, which is one reason that the Washington Post (a.k.a. Fox on 15th Street) is often so out of touch with events. Today columnist David Broder bemoaned the fact that Republican Representative Paul Ryan: "has assumed the role of analyst and provocateur. But no one on the Democratic bench has taken up his challenge, so it is a dialogue of the deaf at this point." 

Actually Democrats across the country have had a field day attacking Mr. Ryan's plans for privatizing Social Security and Medicare. The main problem is that the Republican leadership disowns these plans and insists that Mr. Ryan only speaks for himself. Perhaps one day this news will reach the Post.

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That's what NPR told listeners in its top of the hour news segment on Morning Edition (sorry, no link). The context was the possibility that a slowdown in foreclosures will reduce the supply of foreclosed homes being put on the market.

The Obama administration and other analysts have made this assertion, but it does defy basic economic logic and common sense. If a delay in the foreclosure process results in fewer homes being placed on the market then we should expect prices to rise, not fall. (This is compared to what would happen otherwise -- prices are falling now.) It is arguable whether such an increase would be good or bad, but reporters should try to get this one right even if the administration is having problems figuring out which way is up.

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The NYT had an excellent piece reporting on the debt burdens created by the collapse of the housing bubble in Spain. In Spain, unlike the U.S., mortgage debt typically follows the borrower even after they have lost their house. It is also very difficult to eliminate this debt through bankruptcy which means that many foreclosed homeowners will be saddled with mortgage debt until they die.

This is part of the reason that competent economists were concerned about housing bubbles in places like Spain. The European Central Bank (ECB), like the Fed, was not concerned. No one at the ECB lost their job, or even missed a promotion, as a result of its failure to take steps to counter the housing bubble in many euro zone countries.

It is also worth noting that debt has an effect on labor supply that is comparable to taxes. If a former homeowner knows that they will have to pay 20 percent of their income to a creditor then it reduces their incentive to work in the same way as if they had a 20 percentage point increase in their tax rate. This provides a powerful disincentive to work or an incentive to work off the books. The negative economic impact of harsh bankruptcy rules on economic output is rarely discussed.

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Morning Edition had an outstanding piece reporting on the role that a private prison company played in promoting Arizona's new immigration law. This is what reporters are supposed to do. Add a comment

It sure wouldn't be obvious that the cost of Social Security is one of the biggest problems facing the country. The program's projected shortfall over the next 75 years is equal to 0.5 percent of GDP, according to the Congressional Budget Office. This is less than one fourth of the increase in defense spending over the last decade. The share of health care spending in GDP is projected to rise by more than this every 3 years.

Dealing with global warming, a rapidly growing population of current and former prisoners, educating our children and maintaining our infrastructure all seem to pose much larger challenges than meeting the projected funding shortfall in Social Security. It is not clear why the NYT is telling readers that the growing costs of paying Social Security benefits are "one of the government’s biggest long-term challenges." The data do not appear to support this assertion.

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Low cost factory labor allows consumers to benefit from cheaper shoes, clothes, and toys. (These days it also means cheaper computers, aircraft parts, and windmill turbines.) Low paid immigrants from Latin America reduce the price of restaurant meals, hotel rooms, and child care.

The media routinely tout these benefits from globalization. The U.S. workers who may face cuts or unemployment as a consequence are told to get more training and learn to work harder.

This raises the question as why we don't see a similar celebration at the prospect of an increased supply of lawyers driving down the wages of lawyers and the price of legal services. In fact, a lengthy Slate piece on the increasing supply of lawyers never once mentioned the potential economic gains associated with lower prices to consumers. The prospect of too many lawyers driving down wages in the profession was presented as a problem that should trouble right-thinking right thinking people.

Well, the logic is the same. Those who celebrate the low cost imports from China and the benefits of cheap immigrant labor should also be celebrating the fact that legal services should be costing us less in the future, unless of course they are partial to the relatively affluent types who tend to up as lawyers.

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Peter Orszag, President Obama's former budget director, complained about the current antagonism between business and government commenting that "even if [it is] not the primary explanation for slow hiring and sluggish investment, does seem to be affecting hiring and other business behavior."

First, let's just get some things in perspective. The profit share of domestic income is at a record high. The banks that were central to the economic carnage we are now experiencing have seen their profits and bonuses return to their housing bubble peaks?

What do these little boys and girls have to complain about? Are the politicians saying nasty things about them?

I suspect most people would be pretty damn happy if they still had a job after messing up as bad as these people did. Instead, the Goldman, Citi, Morgan Stanley Wall Street gang are earning tens of millions a year -- thanks to the taxpayer bailouts. And, they are upset about their relationship with government?

Okay, but let's get to the substance. Is there any evidence whatsoever that this antagonism is "affecting hiring and other business behavior?"

If the antagonism was affecting hiring, then we would expect to see firms increase the length of the average workweek as they worked their existing workforce longer hours rather than take on new workers. There is zero evidence of this. The average workweek is up slightly from the low-point of the downturn, but it has been flat in recent months. It is still far shorter than it was before the downturn.

If businesses were deferring hiring then we would also expect to see them make more use of temps. Again, the data will not cooperate. Temp hiring is also up some from the low-point of the recession, but it still down more than 20 percent from pre-recession levels.

As far as the "other business behavior," investment, which is the one we most care about, has actually been pretty healthy in the last few quarters. Investment in equipment and software has grown at nearly a 20 percent annual rate over this period. Investment in structures has been plummeting, but this is to be expected given the huge overbuilding in most categories of non-residential structures.

So, businesses are unhappy but it doesn't seem to be affecting their economic behavior, even though it may affect their pattern of campaign contributions. The obvious answer is buy them all lollipops and move on to more serious issues.

 

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If a member of Congress shows that he doesn't know the basics of the government's most important social program then this makes a good news story, with a headline like "Congressman Ignorant of Basic Facts on Social Security." However, in the Washington Post, a member of Congress can say any loon tune thing they want about Social Security and have it treated as a reasonable comment.

Hence we are given without comment a quote from Republican Representative Tom Price:

"The American people know that the current Social Security program will not survive based upon current rules."

This is a larger gaffe than almost anything the Post has written on from a politician. It would be comparable a politician insisting on his commitment to ending the war in Vietnam, thereby demonstrating his failure to recognize that the war had been over for 35 years.

Of course Social Security will survive just fine based on its current rules. According to the Congressional Budget Office the program can pay scheduled benefits for the next 29 years with no changes whatsoever. It could always pay a far higher benefit than what current retirees receive even if no changes are ever made. If changes comparable to those put in place by the 1983 Greenspan Commission are put in place it would be able to pay full scheduled benefits well in the 22nd century.

At one point the article refers to the interest of President Obama's deficit commission in "reducing benefits for wealthier retirees." It would have been worth reminding readers that "wealthier" in this sentence refers to people like school teachers and firefighters, not the sort of people who are generally viewed as wealthy.

The article also reports the view of Erskine Bowles, the co-director of the commission and a board member of Morgan Stanley, that the size of government should be limited to 21 percent of GDP. It would have been useful to point out to readers that Mr. Bowles apparently believes that we should slow growth and kill jobs to keep government to some arbitrary size cap. By contrast, most other people believe that the services that can be provided most efficiently by the government should be provided by the government.

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The Washington Post headlined an article on the release of the Case-Shiller 20-City house price index for August: "house prices up less than projected." Actually house prices fell by 0.2 percent in August, with prices dropping in 15 of the 20 cities in the index.

The reason that Post reported prices as rising is that it was referring to the year over year change. This measure focuses on old information. We already had data on 11 of the 12 months over the last year. The new information is the August data, which is clearly most relevant for the future direction of house prices.

The article also includes the strange comment that: "In addition to unemployment, concern over deteriorating property values may also be weighing on Americans' psyche." Falling house prices affect Americans' wealth, not just their psyche. As a result of the plunge in house prices since the partial collapse of the bubble, households have seen a decline of close to $6 trillion in their wealth. This means that they have less ability to spend.

It is also surprising to see that the Post believes that the August data was more negative than "projected." The paper should stop relying exclusively on experts who failed to see an $8 trillion housing bubble.

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The NYT devoted a major article to tell readers that flexible health spending accounts, the stupidest tax break anyone has ever been able to design, do not cover breast pumps. This is kind of like devoting an article to the fact that the rapidly growing Flat Earth Society holds meetings on the Jewish holidays.

Of course the real story would be the fact that a nutball organization is rapidly growing and the real story here is that an incredibly poorly designed tax break is continuing in this era of health care reform. Flexible spending accounts are wasteful from almost any perspective.

First the cost of administering the credit for companies is almost as large as the amount of the savings. Many organizations pay close to $100 per worker to administer the accounts. If a person puts $1000 a year into the account and is in the 15 percent bracket, like most workers, the tax savings are $150. If a worker puts the maximum $2,500 in an account and is in the 25 percent bracket, then the savings are $625. In this case, the administrative costs are still more than 15 percent of the tax savings.

This of course does not count the time spent by beneficiaries dealing with their accounts. There is often considerable paper work associated with these accounts. Often companies refuse to make payments, requiring participants to spend hours going back and forth with clerical workers in order to get reimbursements. 

Flexible spending accounts also have an absurd use it or lose it provision. Extra money in an account at the end of the year is lost to the participant. This causes many participants to stock up on items like prescription glasses or over the counter medicines in order to avoid losing their money. Much of this spending is wasteful, since these are items that are not really needed.

Finally the credit is very regressive, since the largest benefits go the highest income individuals. It also is small business unfriendly since the administrative costs make it uneconomical for many small businesses. This puts small businesses at a disadvantage in trying to attract workers who might care about this benefit.

It is remarkable that such an incredibly poorly designed tax credit survived health care reform. (This is probably explained by the fact that most of the people who worked on designing the bill benefit from it.) It leads to more economic distortions that most of the forms of protectionism that get major news attention and cause columnists and editorial writers to hyperventilate (e.g. the "buy America" provision in the stimulus). The continued existence of these accounts merit attention, since it is a major scandal.

 

[Addendum: Several comments correctly point out that contributions to FSAs are also exempted from payroll taxes. This would add another 15.35 percent to the tax savings. So a person in the 15 percent bracket who puts $1,000 into an account would be saving herself and her employer a combined total of 30.35 percent of this amount or $303.50.]

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David Leonhardt has an interesting discussion of public attitudes towards President Obama and the Democrats on the eve of the elections. He notes that the stimulus helped, but the economy is not where President Obama's advisers expected it to be right now.

It is worth noting that President Obama's advisers seriously underestimated the severity of the downturn. They had projected that even without any stimulus package the unemployment rate would peak at just over 9.0 percent. In fact, the unemployment rate peaked at 10.1 percent last fall, even with the stimulus in effect. It had already reached 9.4 percent in May, just as the first effects of the stimulus were being felt. A major reason for the inadequacy of the stimulus was this failure to fully appreciate the severity of the downturn.

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NPR told us yet again that we should be happy about the TARP because it really didn't cost us very much. Since the notion of the TARP free lunch continues to be promulgated widely let's look at it from a slightly different perspective.

In the past, I have made the point that the government made loans and guarantees to huge banks like Goldman Sachs and Citigroup at well below the market price during a financial crisis. This allowed these banks to survive and prosper. If the market had been allowed to work its magic, the shareholders of these banks would have lost all their holdings, their top executives would be walking the unemployment lines, and many of their creditors would have been forced to accept less than 100 cents on the dollar for their debt. This would mean that they would not have claim to trillions of dollars of the economy's wealth which they now have.

The costless TARP argument says that this should not concern us since the TARP did not add significantly to the national debt. So, let's try another approach.

Suppose that in October of 2008 we saw Goldman, Citi and the rest were in big trouble. Instead of the trillions in loans and guarantees from the Treasury and the Fed, we told the banks to just print up money. The government said that the banks should print as much money as they need to survive. The counterfeit money would then be circulated through the economic system just like real money, allowing the banks to survive. At the appropriate time the Fed would withdraw enough reserves from the system to ensure that the counterfeit money did not lead to inflation.

Okay, did the bailout cost us anything? Well, it certainly did not add to the deficit, we never gave the banks any public money. However, the decision to allow the Wall Street banks to freely counterfeit money for a period of time gave them a claim to the economy's wealth that they would not otherwise have. As a result, they are richer than they otherwise would be.

If the economy ever gets back to full employment, their wealth will reduce the resources available to the rest of us. Because the CEOs at Goldman, Citi and the rest have their hundreds of millions in wealth, as do their shareholders, they can command resources (e.g. homes, cares, labor) and thereby prevent the rest of us from enjoying the same resources. In short, the government's authorized counterfeiting cost us some of our wealth, even though it did not involve a single taxpayer dollar. This is the same story with the TARP/Fed bank bailouts.

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In September of 2008 Federal Reserve Board Chairman Ben Bernanke deliberately misled Congress. He told them that they had to approve the $700 billion TARP bailout because the commercial paper markets were shutting down.

A shutdown of the commercial paper markets would genuinely have been disastrous for the economy since most major corporations are dependent on issuing commercial paper for meeting payroll and other ongoing expenses. If even healthy companies couldn't raise money through the commercial paper market then we would be looking at an economic collapse in fairly short order.

Bernanke was deceiving Congress with his discussion of the commercial paper market because he single handedly possessed the ability to support the commercial paper market. In fact, the weekend after Congress voted for the TARP he announced that he would create a special Fed lending facility to directly buy commercial paper from non-financial companies.

If Bernanke had been honest with Congress he could have told them of his plans to create such a facility before they voted on TARP and explained that the commercial paper market could be sustained whether or not they approved the TARP bailout.

This is worth mentioning now because this hoary lie keeps popping up. Let's be clear, it was important for the Fed/government to take steps to sustain a working financial system. But these steps could have included conditions that made Wall Street pay a huge price and change its mode of operation forever.

The decision to give the money essentially without conditions was a political decision that was attributable to the banks' political power. As a result, these parasites are more economically and politically powerful than ever. The public should know the truth even if they lack the money to do anything about it.

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