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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Can the realtors possibly do anything that would impair their credibility with reporters? It seems not. After all, they ran around touting the run up in house prices all through the boom, insisting that house prices never fall. David Lereah, the chief economist for the National Association of Realtors (NAR), even wrote a book insisting that house prices will not fall. If it is possible for an organization to be shown to not be a credible source, the NAR fits the bill.

This is why NYT readers might be baffled to see that the assertions from the NAR taken at face value. The article reports unquestioningly an assertion from Lawrence Yun, Mr. Lereah's successor as chief economist at the NAR, that as many as 180,000 who qualify for the homebuyers' tax credit may have met the requirement that they sign a contract by April 30th, but have been unable meet the requirement that they close by June 30th.

This one is ridiculous on its face. There was an uptick in home sales in April, but the level did not come close to the bubble peaks of 2005-06, so it should not have strained the system to any great extent. Furthermore, demand collapsed immediately after the April 30th deadline, so this would have freed staff to process loan applications that had been filed in April.

There were roughly 600,000 contracts signed in April. If 60 percent qualified for the credit then 360,000 who bought a home in April qualified for the credit. (It is necessary to be either a first-time buyer or have lived in the same home for more than 5 years. There were also income caps.) Mr. Yun's figure implies that 50 percent of these homebuyers were unable to close by the end of June.

Since the contracts were distributed over the month (even if there may have been some clustering toward the end of the month), the vast majority of homebuyers would have had more than 10 weeks to close in order to meet the deadline. Typically, it takes 4-8 weeks to close on a home. There is no reason to believe that the system operating any more poorly in processing these loans that they would ordinarily, which means that it is reasonable to assume that the overwhelming majority of homes contracted prior to the expiration of the credit closed by the June deadline.

It is likely that the 180,000 figure from Mr. Yun is a complete that likely exaggerates the number of qualifying homeowners who missed the June deadline by more than an order of magnitude. By getting Congress to extend the deadline on closing to September 30th, the realtors are creating a great opportunity for tax fraud. It would be very easy for contracts signed in July and even August to backdated to April so that homebuyers could get their $8,000 credit.

At a time when Congress is voting to cutoff benefits for unemployed workers that average $300 a week, its willingness to pass a provision that will almost certainly result in widespread fraud should be an interesting news story.



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The NYT reported that manufacturers are having a hard time finding the skilled workers they need for their modern factories. However, the evidence presented in the article suggests the opposite. It reports that in Cleveland, the city on which the article is focused "more skilled workers earn $15 to $20 an hour."

This is not an especially high wage. For example, it is unlikely that many New York Times reporters live on $30,000 to $40,000 a year nor would they be very happy if their children got a job paying this much. The problem appears to be that manufacturers don't want to pay the market wage for the skills that they need. This is like someone who wants to buy a 4-bedroom home with a yard in a good neighborhood in Washington for $200,000, and then complains that there is a shortage of good homes.

There are good homes in Washington and there would be plenty of skilled workers for manufacturers to hire in Cleveland, if they were just willing to pay the market wage. The only evidence of a lack of a skills in this article is that the managers interviewed for the piece don't seem to have a good grasp of basic economics.

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That's what readers could infer from the NYT's description of the 2.9 percent projected growth for Japan as "anemic." Japan's population is decreasing at the rate of 0.2 percent annually. Therefore this growth rate translates into a projected per capita growth rate of 3.1 percent.

By contrast, most forecasts put U.S. GDP growth in the range of 2.0-3.0 percent. Since the population in the United States is growing at a rate of 0.9 percent annually, this translates into a per capita GDP growth rate of 1.1 to 2.1 percent. In other words, the United States is expected to have a per capita growth rate that is least a percentage point slower than the Japanese rate that was considered "anemic."

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Erskine Bowles, the Democratic co-chairman of President Obama's deficit commission, revealed that he was a numerologist yesterday when he suggested that the commission should set a limit on federal government spending at 21 percent of GDP. (Numerologists assign mystical powers to specific numbers.)This fact should have been highlighted more prominently because it is unusual to have people with such extraordinary beliefs in prominent positions in government.

More typically these people are pragmatists who believe that goods and services should be provided in the most efficient possible way. For example, if it is more efficient to provide retirement benefits through a public Social Security system or health care through a public Medicare-type system, most people in responsible positions would support expanding the public sector.

However, because of his belief in numerology, Mr. Bowles would waste resources, thereby slowing growth and eliminating jobs, by instead providing these services in a less efficient manner in the private sector. This is a very peculiar view and should be highlighted by those reporting on the deficit commission.

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Harold Meyerson touts Germany as one of the winners in this downturn noting that its unemployment rate remained below that of the United States. While he attributes this fact to its strong manufacturing sector, Germany has actually suffered a steeper downturn than the United States.

The reason that Germany's unemployment rate is more than 2 percentage points lower than the rate in the United States is that it has a policy of work-sharing to deal with inadequate demand. Instead of paying out benefits to unemployed workers, it pays companies to reduce workers' hours.

In a typical arrangement workers would see their hours cut by 20 percent. The government makes up 60 percent of the lost wages or 12 percent of total wages. The company makes up 20 percent of the lost wages or 4 percent of total wages. The worker then ends up with a pay cut of 4 percent while working 20 percent fewer hours. This loss of pay is likely to be largely offset by fewer work-related expenses, for example lower commuting costs as a result of working a 4-day week instead of a 5-day week.

As a result of work sharing Germans are experiencing this downturn in the form of shorter workweeks and longer vacations. By contrast, in the United States workers are experiencing the downturn as near double-digit unemployment.

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That is what the NYT would have told readers if they followed the same practice they do now in talking about opponents of extending unemployment benefits. The NYT told readers that: "the jobless aid measure is one of the last remnants of the Democrats' jobs agenda, which has largely fallen prey to GOP concerns about the deficit."

How does the NYT know that the Republicans are really concerned about the deficit, because they say are concerned about the deficit? Almost without exception, the opponents of the major pieces of civil rights legislation in Congress claimed that they really were not opposed to civil rights, they just wanted the issue left to the states. Would the NYT tell its readers that the opposition to the legislation stemmed exclusively from concern about states' rights.

In this case, many members of Congress who had no difficulty adding to deficits with spending on the wars in Iraq and Afghanistan or with tax cuts largely targeted to the wealthy, are suddenly concerned about the deficit when the issue is unemployment benefits or aid to state governments. While it is possible that their views about deficits really have changed, it is also possible that concerns about deficits are not the real reason for the Republicans' opposition.

Politicians sometimes are not completely honest in the explanations they give for their actions. Reporters should know this. Therefore news outlets should tell readers what politicians say. It should not try to tell readers what their motive is, because the news outlet does not know.

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The NYT had an article reporting that a number of states are restricting enrollment in a program that provides drugs for people with AIDS. It notes that the program cost governments an average of $12,000 a year. It would have been mentioning that in the absence of patent protection these drugs would sell for a few hundred dollars per year.

Patent protection for drugs is an extremely costly form of protectionism causing many drugs to be sold at several thousand percent above their free market price. There are almost certainly more efficient mechanisms for supporting prescription drug research. While the Washington Post recently devoted a lead front page article to tariffs on ironing boards, no major news outlet has been interested in discussing the much greater distortions resulting from protection for prescription drugs.

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The NYT had an article this morning reporting on the strong growth in much of Latin America, which it attributes in part to the high demand for commodities coming from Asia. At one point it comments:

"After a sharp contraction last year, Mexico’s economy grew 4.3 percent in the first quarter and may reach 5 percent this year, the Mexican government has said, possibly outpacing the economy in the United States."

This is actually rather weak growth given that Mexico's economy contracted 6.5 percent last year. By comparison, Brazil and Peru, two of the other countries highlighted in the article anticipate growth of more than 7.0 percent in 2010. Neither experienced a downturn as sharp as Mexico's.

Also, for Mexico it should not be much of an accomplishment to outpace the growth in the United States. Mexico's population is growing at a rate that is approximately half a percent higher than the rate in the United States. This means that it it doesn't grow more rapidly, then its people are getting poorer in average relative to people in the United States. It would be expected that its per capita growth rate would actually be faster, so that incomes are converging between the two countries. 

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If you're wondering why Goldman Sachs is richer than you are, and we supposedly have to cut Social Security, remember friends are everything. Add a comment

The Post noted that Congress has been reluctant to extend unemployment benefits in spite of the evidence that they will boost the economy. It then told readers that: "Congress is balking at the added expense in an election year, as Republicans accuse Democrats of out-of-control spending and as many rank-and-file Democrats struggle to justify an increase in already sky-high deficits."

It is not clear that members who oppose extending benefits (most of whom are Republican) are actually concerned "out-of-control" spending or "sky-high" deficits. Of course, spending grew in response to the economic downturn, as the Post should know. So it is misleading to refer to it as "out-of-control" or the deficits as "sky-high."

While the Republicans who oppose stimulus measures such as extending unemployment benefits because they are now concerned about budget deficits (most were not during the Bush presidency), it is also possible that they oppose these measures because they feel they would gain politically in November from seeing them voted down. It is likely that a weak economy will benefit the Republicans in the election. This article should have at least noted the possibility that politicians may not act for the reasons they claim in public, sometimes they don't.

This piece also said that President Obama "acknowledged" that reining in the debt may require cuts in Medicare, Medicaid, and Social Security. The correct word would be "said" or "asserted" unless the Post has some independent basis for knowing that changes in such programs are necessary, in which case it should share this evidence with readers.

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Last week the Washington Post devoted a major front page story to a report on tariffs on Chinese ironing boards that can be as high as 150 percent. Today a page 2 article reported on evidence that a popular diabetes drug, Avandia, increases the risk of strokes and heart attacks.

The Avandia article never discussed the government imposed patent protection that allows Avandia's manufacturer, GlaxoSmithKline, to charge prices that are several thousand percent above the competitive market price. The enormous profits that result from this protection gave GlaxoSmithKline a powerful incentive to conceal evidence that the drug was harmful, as is alleged in the article.

It is interesting that the Post would devote so much attention to highlighting protectionism in the context of ironing boards, while ignoring the issue altogether in the case of a drug with sales of $3 billion a year and which could lead to thousands of unnecessary of heart attacks and strokes. There are other mechanisms to support drug research which would allow drugs to be sold at competitive market prices. 

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It might have been worth pointing this out in an NYT piece telling readers how Ireland's deficit reduction has devastated the country and still left it with large deficits. It also might have been worth talking to an economist who could have pointed out that it is not just markets that are forcing Ireland to go the austerity route, it is the European Central Bank (ECB). 

The ECB, like the Fed in the United States, could adopt a more aggressive policy of supporting member states governments. For example, the ECB could buy up large amounts of member state debt and offer extensive guarantees. This would allow Ireland, which had run budget surpluses and had a low national debt before the collapse of its housing bubble, more time to re-orient its economy. Given the huge amount of unemployment and excess capacity in the European Union, there is little risk of inflation from going this route.

This otherwise good piece does a disservice to readers by implying that markets are forcing this suffering on the Irish population. It is the decisions of the ECB that is leading to this suffering.

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That seems to be the main point of Robert Samuelson's column today. It might be a bit easier with a bit more careful thought.

For example, Samuelson tells readers that the debt burdens of major countries are rapidly approaching "financial and psychological limits" that prevent further fiscal stimulus. He then cites the 92 percent debt to GDP ratio for France, 82 percent for Germany, and 83 percent for the UK as countries that are reaching these limits.

If he was looking for financial and psychological limits, he might have considered the case of Japan. Its debt to GDP ratio is close to 220 percent. Its interest payment take up a bit more than 1.0 percent of GDP each year and it can borrow at long-term interest rates of around 1.5 percent. This is possible because its central bank has bought up much of the government's debt over the last 15 years. Since the economy remains well below its capacity, the central bank's actions have not to led to inflation. In fact, Japan continues to be troubled by deflation.

The European Central Bank could similarly adopt a policy of buying and holding large amounts of the debt of euro member governments. The interest on debt held by the central bank does not impose a burden on governments, since it is rebated to them.

The column also touts some recent research which purports to show the benefits of deficit reduction as stimulus. It is worth noting that nearly all the examples of deficit reduction as stimulus involve countries that faced very high interest rates and in which trade comprised a very large share of the economy.

In these circumstances, a reduction in the deficit could produce a substantial stimulus through two channels. First, it would lower interest rates, which would provide a direct boost to domestic investment and consumption. Second, lower interest rates would lower the value of the currency, which in turn would make its goods more competitive internationally, thereby increasing net exports.

These conditions do not apply for most countries at present and certainly not to the United States. It is very doubtful that even the strongest deficit reduction measures will have a noticeable effect on lowering already low interest rates. It is also not clear that there would be any substantial investment response to lower interest rates by businesses that already are sitting on huge amounts of retained earnings. Heavily indebted consumers are also not likely to substantially boost consumption.

The trade route also does not look especially promising. If interest rates fell in the United States it is unlikely that it will lead to much of a decline in the dollar in a context where it has been pushed up by a flight to safety in uncertain times. Furthermore, it is not clear that the United States will be able to increase its net exports by much at a time when every other country is trying to go the same route and is also constricting demand through fiscal contraction.

See, economics really isn't hard.

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Senator Scott Brown has indicated that he may reverse himself and vote against the final version of the financial reform bill. He claims to be upset about fees levied on financial institutions that will total $18 billion over the next decade.

It would have been helpful to put this number in some context so readers would have clearer idea of what is at stake. The fee is approximately equal to 0.01 percent of projected GDP over the next decade. If it is fully passed on by financial institutions to customers will cost people an average of $6 a year. 

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The NYT used the term "free trade" three times in a short article on President Obama's plans to push Congress to approve the trade agreement this year. The agreement is not a free trade deal in that it leaves many barriers to trade in place and actually increases some barriers by requiring South Korea to increase the stringency of patent and copyright protection, notably for prescription drugs. It is not clear what information the NYT considers to be added by the inclusion of the word "free" in this article. Excluding it would both save space and increase accuracy.

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If we look at the track record, probably not. After all, where was the IMF when the housing bubble in the United States and elsewhere was building up to ever more dangerous levels? Was it frantically yelling at governments to rein in the bubbles before they burst with disastrous consequences? No, the housing bubbles were no big deal at IMF land.

This would have been worth noting in a Washington Post article that repeats at length IMF recommendations about reducing budget deficits, cutting back on labor market protections for workers, and rolling back pension and health care benefits. After all, any reasonable person would ask when the IMF stopped being wrong about the economy. 

Actually, advice from the IMF may compare unfavorably to advice from a random drunk. The drunk will just be incoherent. There is reason to believe that the IMF has political motivations in the advice it gives. At the end of 2001 Argentina defaulted on its debt enraging the IMF. Prior to the default Argentina had been an IMF poster child eagerly embracing the IMF's program. 

The IMF's growth forecasts clearly reflected its change of attitude toward Argentina. Prior to the default the IMF was consistently overly optimistic about Argentina's growth prospects projecting much higher growth than Argentina actually experienced. After the default, the IMF was hugely over-pessimistic, projecting much lower growth rates than it subsequently experienced. It is difficult to explain this pattern of errors except by a political motivation.  


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The NYT had another piece complaining that state and local pension funds are using overly optimistic assumptions on returns. The complaint is that the funds assume an 8 percent (nominal) average annual rate based on the historic returns on the mix of assets held by these funds, rather than a 6 percent rate which would be closer to the average risk-free rate on long-term U.S. Treasury debt.

At one point the piece presents us with the good news that:

"The financial crash provoked a few states to lower their assumed returns. This will better reflect reality, but it will not repair the present crisis."

Actually, the opposite is the case. Because the crisis sent stock prices plummeting, the ratio of stock prices to trend earnings ratio is much lower than it had been previously. As a result, it is much more reasonable to now to assume 8 percent average returns going forward than it was before the crisis. State and local pension funds do face substantial shortfalls, but calculations based on a 6 percent rate of return on assets would exaggerate the size of this shortfall.

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In a chart accompanying an article on the financial reform bill approved by the House-Senate Conference Committee the Washington Post told readers that:

"Ahead of the crisis, there was no agency in the government responsible for monitoring the financial system as a whole and looking for potential threats to its health."

This is not true. There was an agency that had responsibility for the monitoring the financial system as a whole and looking for potential threats to its health. It is called the "Federal Reserve Board." This is a main purpose of the Fed and it has fulfilled this role on several occasions, most notably when it intervened to halt the stock market crash in 1987 and to arrange the orderly unraveling of the Long-Term Capital Hedge Fund in 1998.

This point is important, because the problem that led to this crisis was not a lack of regulatory authority as this assertion implies. Alan Greenspan and Ben Bernanke had all the power they needed to rein in the housing bubble before it grew large enough to threaten the health of the economy. They chose to not use this authority either because they did not recognize the bubble or did not consider it a serious problem.

There is absolutely no reason to believe that if we had the newly created "Financial Services Oversight Council" in place in the years 2002-2007, when the housing bubble was inflating, that anything would have been different. Greenspan and Bernanke both repeatedly insisted that everything was fine in the housing market and the financial system more generally.

There were very few dissenting voices to the Greenspan-Bernanke position. Those in authority (and newspapers like the Washington Post) had no problem ignoring these dissenting voices. If there had been a Financial Services Oversight Council in the years when the bubble was inflating it almost certainly would have been staffed entirely by people who shared the Greenspan-Bernanke view. There is no reason whatsoever to believe that it would have done anything to avert the current economic crisis.

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In keeping with the policy of fact-free reporting at the Post, David Ignatius touts the economic successes of the last year and proclaims: "much of the necessary repair work has been done, with one nagging exception -- the lack of a credible long-term plan to control the deficit."

Wow, no one told him about 9.7 percent unemployment.

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Morning Edition had a useful piece about efforts to stimulate the economy with budget deficits and the attempt to rein in these deficits. It compared this deficit reduction to President Roosevelt's effort to balance the budget in 1937 which led to a second recession.

While the piece included some discussion of the size of current deficits, it would have been useful to note the size of the hole in private sector spending that the government is trying to fill. The collapse of the housing bubble led to a falloff in residential construction of more than $500 billion annually. The collapse of the bubble in non-residential real estate led to a drop of more than $100 billion in construction in this sector. And, the loss of housing bubble wealth led to decline of more than $500 billion in wealth driven consumption. The total loss of private sector demand is more than $1 trillion a year. This is gap that must be filled by stimulus from the government sector.

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The Washington Post reported on the Senate's refusal to extend unemployment benefits. At one point it referred to plans to change the tax treatment of income earned by managers of hedge funds, private equity funds, and real estate funds as a "new tax."

Currently, much of the income of these managers is taxed as capital gains even though it is paid in exchange for work. As a result, many of the richest people in the country are paying a 15 percent tax on their earnings (if they cash them out -- there is no tax paid on money left in the fund), instead of the 35 percent rate that high earners would otherwise pay (39.6 percent after the end of the year). The proposed change in the tax code would treat some of their earnings as labor income subject to ordinary taxes. It is not clear that change should be described as a new tax.

The article also discusses the additional debt that would incurred if the unemployment extension bill was approved by Congress. It tells readers that the proposal would have increased deficits over the course of the decade by $33 billion. It would have been helpful to note that this is equal to approximately 0.02 percent of projected GDP over this period.

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