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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This is in the preemptive strike category. It seems from initial reports that no one bothered to notice that half of this quarter's GDP growth (1.6 percentage points) was driven by inventory accumulation. If we pull out inventories, final demand grew at a 1.6 percent annual rate, almost exactly the same as the 1.7 percent rate in the 4th quarter of 2009 and the 1.5 percent rate in the 3rd quarter of 2009.

In other words, we are still looking at a very weak economy; one far weaker than would be expected coming out of such a severe downturn and one which may not even be growing fast enough to create any jobs at all.

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NPR told listeners that the public has supported drilling offshore because they objected to the country's dependence on foreign oil and the wars in the Middle East.This is very interesting because it shows how badly the media have reported on this issue. There are no projections that show drilling offshore will have any noticeable effect on U.S. dependence on foreign oil. The media (including NPR) have horribly misrepresented the potential impact of offshore oil so that tens of millions of Americans actually believe that it has anything to do with dependence on foreign oil.

It would have been interesting to report the attitudes towards offshore drilling among those who know that it will not have any noticeable impact on U.S. dependence on foreign oil or the price of gas.

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There were down slightly last week, but the 4-week moving average is still 462,000. Usually claims have to be under 400,000 to be consistent with steady job growth.

This release got no mention in the Post even though it provides far more information about the state of the economy than other data releases that are routinely covered, such as the consumer confidence indexes. Perhaps the Post will give the data more attention when it starts showing fewer claims.

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New York Times columnist Floyd Norris told readers that: "China ties its currency to the dollar, and despite American jawboning, there is little that the United States can do about that." Actually, the U.S. government is free to set its own higher exchange rate of the yuan against the dollar.

The Chinese government sets an exchange rate puts the value of the yuan at approximately 14 cents. There is nothing that prevents the Treasury of offerring to buy yuan at a higher price, for example 20 cents. If the Treasury made this commitment and was prepared to stand behind it, it would like raise the value of the yuan to 20 cents. This competing exchange rate would be highly unusual, but there is nothing that literally prevents the U.S. government from doing it.

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University of Chicago economist Casey Mulligan makes the case that housing is now on the upswing. The part of the story that he seems to have missed is that after house prices rose last fall as a result of low mortgage interest rates, a hyperactive HUD, and the first time homebuyers tax credit, they have recently reversed course and are heading downward by most measures. We'll look for Professor Mulligan's account of the second housing slump in 6 months or so. Add a comment

That should not be a surprise given the paper's hostility to Social Security and its outrage over the fact that unionized auto workers can earn $56,000 a year, but the Post's editorial calling for reform does miss an important part of Greece's story. While aspects of Greece's welfare state almost certainly do need to be changed (a retirement age of 60 is hard to support in a modern economy), it is also important to note that there is massive tax evasion in Greece, especially by the wealthy.

The OECD estimated the size of Greece's underground economy at more than 30 percent of its official economy. Even if this is an overstatement, the existance of a large uncounted sector inidcates that Greece's debt burden is considerably smaller relative to the size of its economy than the official data imply. It also points to the fact that many wealthy people are likely paying the taxes that they legally owe. Greece's citizens are likely to be less amenable to giving up benefits like a relatively generous Social Security system in a context where the wealthy are avoiding their tax obligations. This is an important part of the story that needs to be mentioned in  any discussion of Greece's fiscal problems.

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Just about the whole economics profession missed the housing bubble that sank the U.S. economy. Fortunately for them, economics is not a profession where performance matters. The "experts" who completely missed the largest economic disaster in 70 years are still the sole source for the overwhelming majority of news stories on the crisis.

This is especially painful in coverage of the Greek and now larger euro crisis. Those of us who read Keynes (a group which should include all economists, but apparently excludes nearly all media "experts") know that the problem is that the European Central Bank has to make more money available to its members to get through this crisis. While many governments hold superstitions about the benefits of rain dances and the causes of inflation, there is no basis for concern that printing money will cause inflation in the current economic situation.

The story that reporters should be writing that is that the superstitions of many European governments (with Germany topping the list) are needlessly inflicting pain on tens of millions of people across Europe. Ironically, these superstitions may ultimately have a severely negative effect on Germany's economy as well.

Economists who are not clueless about this crisis could explain this situation to readers. It is unfortunate that most major media outlets have chosen to rely exlcusively on economists who are.

 

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It's possible that he doesn't know this, but it is what he said. According to the NYT, Volcker said that: "He [Volcker] and other speakers expressed fear that without some action in the next year or two that reduces deficits for decades to come, interest rates could spike, the dollar could lose value or some other financial crisis would occur."

A drop in the dollar is the only plausible way to get our trade deficit closer to balance. A large trade deficit, by definition, means that the United States must have low national savings (barring an extraordinary and unprecedented uptick in investment). Low national saving means that we must either have large budget deficits or very low private savings, or some combination. So proponents of a high dollar (like Mr. Volcker) want a large budget deficit and/or very low private savings. It would have been helpful to point this fact out to readers.

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NPR presented a segment on the impact of the new health care bill on farmer this morning. It told listeners that employers of more than 50 workers who do not provide insurance will be required to pay a "hefty" fee. It is not clear how NPR determined that the fee was "hefty."

 

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It would have been helpful to point this fact out in an article reporting on the Greek and eurozone financial crisis. While Greece did have serious fiscal problems prior to the economic crisis, the other countries now facing difficulties were not similarly troubled. Spain, the most important of the troubled countries, actually was running surpluses prior to the crisis. The difficulties now facing these countries is largely the result of the economic downturn, which has seriously worsened their fiscal situation.

The European Central Bank (ECB) could make the money available to these countries to sustain their economies through this downturn. (They would print it.) The ECB has opted not to go this route because of peculiar superstititions about inflation. It would be worth pointing out to readers that this crisis is largely the result of superstitions by Europe's central bankers, not fundamental economic problems.

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The Washington Post (a.k.a. Fox on 15th Street) told readers that: "Official forecasts suggest that without sharp changes in federal spending or tax collections, the United States could enter into a downward spiral of indebtedness that by the end of this decade would erode the country's ability to educate its children, care for the elderly or mount a robust national defense."

Wow, that sounds really dire. It would have been great if they gave a source for this one because that is not what the standard sources say. For example, if we go to our most recent Budget and Economic Outlook from the Congressional Budget Office (CBO), we find the economy growing at an average annual rate of 2.4 percent over the years 2015-2020. CBO also projects average productivity growth for this period at 1.8 percent a year, meaning in principle that living standards can rise at roughly that rate. It also projects an average interest rate on 10-year Treasury bonds of 5.5 percent, this is only slightly higher than the low-point of the budget surplus years at the end of the Clinton administration.

In short, there is no evidence in these projections of the sort of crisis described in the Post article. It would be interesting to see the document(s) that provide the basis for the Post's assertion.

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Federal Reserve Board Chairman Ben Bernanke, who famously missed the housing bubble and then insisted the problems in the housing market would be contained in the subprime sector, warned the country about the need to contain deficits in testimony before President Obama's deficit commission today.  It would have been helpful to readers if reporters had noted Mr. Bernanke's track record so that they would be better able to assess the importance of his remarks.

Of course, his main statement: "History makes clear that failure to achieve fiscal sustainability will, over time, sap the nation's economic vitality, reduce our living standards, and greatly increase the risk of economic and financial instability," is trivially true. Obviously something that is not sustainable cannot, by definition, persist indefinitely.

However, Bernnake's statement provides no basis for determining whether this is a need to act now, in 5 years, or in 20 years. It effectively says nothing. Reporters could have pointed this fact out to readers.

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The Post has a piece this morning on Delaware Senator Ted Kaufman and his proposal for breaking up the big banks. At one point it presents a quote from Larry Summers, the head of President Obama's National Economic Council: "Most observers who study this believe that to try to break banks up into a lot of little pieces would hurt our ability to try to serve large companies, and hurt the competitiveness of the United States."

It would have been worth pointing out to readers that Summers' asssertion is not obviously true. Many prominent experts on banking, including two current regional Federal Reserve Bank presidents and Simon Johnson, the former chief economist at the IMF, have argued that the country does not need banks that are as large as the too big to fail institutions that would be broken up under Senator Kaufman's amendment.

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Oh yeah, the Post forgot to mention this part of the story. In an article that focuses on the debt burden facing an Italian city, the Post told readers: "analysts are also warning that national coffers could be further strained if heavily indebted countries are forced to spend precious resources to rescue local jurisdictions."

This is a problem for the euro zone countries who do not have the option to simply print money to boost their economy in the downturn. Since the basic probelm facing the world economy right now is inadequate demand, there is little reason that large economies cannot boost demand by simply printing money. The European Central Bank could do this on behalf of its member countries. It has chosen not to, thereby subjecting millions of people to unnecessary suffering. It is remarkable that the Post chose not to mention this fact.

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The headline of the CNNMoney.com piece is that: "Economists: The stimulus didn't help." This is striking. The independent economists at the Congressional Budget Office certainly think it helped, adding more than 2 percentage points to GDP growth and lowering the unemployment rate by over a percentage point. Many prominent private economic forecasting firms, including Moodys.com, Global Insights, and Macroeconomic Advisors, also believe that it helped.

So, what's the basis for this story? A survey of 68 members of the National Association of Business Economists (NABE) found that 73 percent thought that the stimulus had no impact on employment. This is not exactly a representative group of economists. NABE tend to be far more conservative than the economics profession as a whole. It is wrong for CNN to present their views as representative.

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The Wall Street Journal told readers that: "the Congressional Budget Office said recently the social security trust fund will record a deficit in 2010, returning to the black briefly, before permanently going back into the red 2016." This is not true. The Social Security trust fund is projected to show a surplus of close to $100 billion in 2010 and will remain in the black until after 2020.

The Journal likely forgot to include the interest on the bonds held by the trust fund. If the WSJ is talking about the trust fund, then this money must included. It is remarkable that the paper's editors somehow missed this error.

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A big part of the story of the housing bubble is that the bond rating agencies were willing to give issuers of mortgage-backed securities collaterized debt obligations investment grade ratings even when they were clearly junk. The explanation was that the rating agencies were being paid by the issuers, therefore they had an enormous incentive to bend their ratings. If they rated these issues honestly, they would lose their business.

The conflict of interest in this "issuer pays" system has been widely noted. Unfortunately it has prompted mostly strange genuflecting rather than serious thinking. The obvious way to fix the conflict is to take away the hiring decision from the issuer. The issuer would still pay the rating agency but a neutral party -- the SEC, the stock exchange on which the company is listed, the local baseball team -- would make the decision as to which agency gets hired.

Some of us have been pushing this one for a while (e.g. here and also Plunder and Blunder), but Congress has preferred much more complex regulations that would have no impact on the basic conflict of interest. However, Paul Krugman comes to the rescue in his column today. Maybe now someone in Congress will be able to think clearly on this issue.

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This piece includes the information that the national debt "totaled $8,370,635,856,604.98 as of a few days ago." Boys and girls are you impressed by that big number? Are you scared yet? This is Fox on 15th here -- they'll keep trying.

This sentence continues by telling readers that this number is not "even counting the trillions owed by the government to Social Security and other pilfered trust funds." How did the author determine that the trust funds were "pilfered." The government didn't do what he wanted it to with the money? Wow, that gives a reporter the right to say the money was "pilfered." Apparently it does at the Post.

The article does not include the views of any experts who do not view the debt as a serious problem. It presents an inaccurate assertion (in the context presented) from Brookings economist Bill Gale that the debt: "This [running up the debt] is all an exercise in current generations shifting burdens on future generations."Actually, the debt being run up at present is helping future generations by keeping their parents employed, improving the infrastructure and providing them with a better education. There is little or no real burden associated with this debt since much of the debt being issued is held by the Fed. The interest on these bonds is therefore paid to the Fed, which in turn refunds the money to the government.

Last week, the NYT reported that the Fed paid more than $47 billion in interest to the government. So, where is the burden on our children? If we do get the economy back to normal levels of output the deficit will be at a manageable level. Over the long-term, if we don't fix the health care system, we will face serious budget problems, but this is an argument about the need to fix our health care system, not about the deficit.

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The Washington Post's most widely cited source on the housing market during the run-up of the housing bubble was David Lereah, the chief economist of the National Association of Realtors, and the author of Why the Housing Boom Will Not Bust and How You Can Profit From It. In many articles, Lereah was the only expert cited. This was ungodly bad reporting.

Today's paper has a front page story, the main point of which appears to be that Goldman Sachs made bets against the housing market and stood to profit from the collapse of the bubble. (The story actually leaves this conclusion in question.) It's not clear what in this story would be newsworthy and especially what would make it front page news.

If Goldman did bet against the housing bubble, then its actions were helping to bring the bubble to an end before it caused even further damage to the U.S. economy. Goldman's actions would have the effect of making homes more affordable for new buyers. It would also help to increase the national saving rate (a top Washington post priority), by eliminating bubble generated wealth that was spurring consumption. In short, while Goldman's actions were undoubtedly taken for profit, they would be beneficial to the economy as a whole.

Goldman has been accused by the Securities and Exchange Commission of misrepresenting its issues of collaterized debt obligations in order to get investors to take the long-end of the housing market. This is a serious accusation and presents the possibility of substantial civil, if not criminal penalties. However, there is nothing at all improper about placing a bet against a bubble in the market. It is not clear what the Post thought to be the news in this story.

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That's what the Washington Post told readers this morning. This claim would news to hundreds of millions of people around the developing world. Back in the 90s the IMF came to be known as the "Typhoid Mary" of emerging markets as its policy prescriptions led to sharp economic downturns in one country after another. It tried to impose a harsh austerity plan on Argentina in 2001 and did everything it could to sabotage its economy when the country refused to go along. Its sabotage effort included economic growth projections that were likely politically motivated, since they consistently under-projected growth. This would have the effect of scaring away potential efforts. By contrast, the IMF consistently over-projected Argentina's growth in the years when it was following policies recommended by the IMF.

The theme of the article is that people in wealthy countries will have to accept lower living standards, as indicated by its headline: "for nations living good life, the party is over, IMF says." Of course, nations don't live the good life, individuals within nations do. In the United States, and to a lesser extent, most other wealthy countries, the last three decades have been marked by an upward redistribution of income. This has led to a situation in which most of the gains from growth have gone to those at the top end of the income distribution. This would suggest policies that focused on cutting back on their good life, for example a financial transaction tax or the financial activities tax (FAT) that was proposed by the IMF last week. This would cutback on the high incomes of Wall Street's "top performers" while leaving most of the rest of the country largely unaffected.

The distributional issue is also important in the context of one of the other policies highlighted by the IMF: reducing the value of the dollar against the yuan and other currencies. This will raise the price of imports and in that way lower living standards in aggregate. However, by making U.S. manufacturing more competitive, it will increase the demand for manufacturing workers, allowing many workers without college degrees to get relatively high-paying jobs. This is likely to lead to an improvement in living standards even if these workers have to pay somewhat more for imported goods. (Imagine a worker can get paid $20 in auto factory instead of $10 working in a convenience store. They will be much better off even if they have topay 20 percent more for their clothes, shoes, and toys.)

Finally, this article includes an assertion that the United States might need: "roughly $1.4 trillion annually, to be cut from government programs or raised through new taxes." There is no remotely plausible story that would give a number even half this large. This is the size of the government's current budget deficit. More than half of this shortfall is attributable to the fact that the economy is operating well below full employment. If the country were at normal levels of output, the current deficit would be less than 5 percent of GDP.

And, there is no reason that the country must balance its budget. Deficits equal to 2-3 percent of GDP are consistent with a stable or declining debt to GDP ratio. This means that the adjustment needed to get the budget on a stable fiscal footing are likely less than one-quarter of what is implied by this Post article. Furthermore, much of this gap can be made up simply by allowing freer trade in medical services.

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Actually, that is not what the Post said about the implications of Greece defaulting on its debt. A front page story told readers:

"A default in Greece could also ripple across the Atlantic, hitting banks and pension funds holding Greek bonds and heightening investor worries about the national debt of the United States"

Yes, it "could" have this effect, just like it could lead to a run on calamari and lamb as people read about Greece in the newspapers and get the urge to eat calamri and lamb. But, that is not likely to happen. To date, as has been reported in the Post and elsewhere, the prospect of a default by Greece has been associated with the opposite reaction: a flight to the dollar as a safe haven, which has meant lower interest rates.

It is of course the Post's editorial to promote concerns about the U.S. debt and deficit. Most newspapers try to keep a separation between their news pages and their editorial pages.

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