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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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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The New York Times assigned former Washington Post reporter Sebastian Mallaby to review Robert Reich's new book, Aftershock: The Next Economy and America's Future. It is unfortunate that they couldn't find someone familiar who knew some economics for this task.

Near the beginning of the review, Mallaby tells readers:

"Reich insists instead that American consumers, and particularly the middle class, have been buying too little. For years, the United States has consumed more than it has produced; the excess demand has sucked in products from abroad, which is why the nation has run a trade deficit. The idea that the economy has suffered from a lack of demand is, shall we say, eccentric."

Actually, there are few economists who would say that the United States had excess demand throughout most of the last decade, so Robert Reich is exactly right on this point and Sebastian Mallaby is completely wrong. The trade deficit was the result of an over-valued dollar.

This is actually very basic economics. The value of the dollar determines the relative price of foreign and domestic goods. If the dollar is sufficiently over-valued then the United States could be running a trade deficit even when demand is grossly inadequate -- as is the case at present. The high dollar makes imports very cheap for people in the United States, which causes us to consume large amounts of imports. It also makes U.S. exports expensive to people living in other countries, which means that we will have weak exports. It is remarkably that Mallaby is apparently unfamiliar with this basic logic and that his mistake was apparently not caught by the editor.

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Yes, they work cheap, but is it a good thing to have a group of especially low-paid workers in the United States? That is the question that goes unaddressed in Ezra Klein's column hyping recent research suggesting that immigrants do not lower the wages of even less-educated workers.

While there are some issues about the research findings (rent, which is a large share of low-wage workers' budgets, is far higher in cities with large immigrant concentrations [e.g. Los Angeles and Miami] than in cities with relatively few immigrants [e.g. Buffalo and Toledo] which makes real wage comparisons difficult), the implications are a bit more complicated than suggested in the column.

Essentially the research implies that less-skilled immigrants have formed an underclass that is paid so poorly that its size does not affect the wages of even the least skilled native born workers. This would be consistent with the findings of other research that it is taking far longer now than in prior decades for immigrants' wages to catch up with the wages of native born workers. As would be expected, new immigrants primarily compete with other earlier immigrants, so a more rapid flow depresses their wages.

There are some statements (derived from the cited research) that are simply untrue. There are very few jobs done by less-skilled immigrants that would not be done by native-born workers. They would be done, just at much higher wages. For example, the jobs in construction and meat-packing that are now filled largely by immigrants used to be filled by native born workers, and in fact were often sought out. But, the pay in these sectors has fallen sharply and many fewer native born workers are now willing to fill the jobs. However, there is nothing intrinsic to the jobs that makes them unsuitable for native-born workers.

Klein is right about the enormous potential gains from allowing in more highly-skilled immigrants but does not carry the point far enough. If the United States adopted more transparent professional and licensing standards for doctors and lawyers and other highly paid professionals, and adopted an open door policy for foreigners who met these standards, we could send pay in these professions plummeting. There would be enormous gains to consumers and the economy, which would swamp the marginal benefit of getting lower cost construction workers and custodians. However, doctors and lawyers have enough power to prevent such policies from being adopted and generally from even being discussed. 

 

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Most workers are held accountable for their performance. The same does not apply at the Washington Post for the people who run economic policy. Once again the Post offered praise to Presidents Bush and Obama for preventing a Great Depression.

Of course it is always good to prevent a Great Depression, but the only reason a severe recession is even on the agenda is the result of braindead economic policies that were almost entirely ignored by the Washington Post. In the real world avoiding a Great Depression is a rather weak boast. (For the record, the second "Great Depression" story is a myth to scare little children and Post readers. The first Great Depression was the result of a decade of failed policies, not a single mistake or set of mistakes at its onset.)

Competent economists saw and warned of the dangers of the $8 trillion housing bubble, the collapse of which eventually sank the economy. This was an entirely predictable and predicted event, as was the fallout from this collapse.

However, those warning of the bubble were almost completely excluded from the pages of the Post. Instead, the Post filled its economic coverage and opinion pages with discussions of the budget deficit, which was (and is) the topic of endless hyperventilation. 

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The Post told readers that Republicans who complain about a bloated federal work force have the view that:
"new hires under Obama and the premium are helping to drive the deficit and discourage private investment that could boost the economy." 

Actually, they don't usually say this since the claim is so obviously at odds with reality. With interest rates at 60 year lows, it is very hard to say how the deficit would be discouraging investment -- as opposed to encouraging it by increasing demand. The argument against deficits usually involves name calling and hand waving. There is no obvious logic to it at this point and the Post is misleading readers by implying that there is.

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The Washington Post, which is losing circulation rapidly, routinely misleads its readers about the burden of the national debt. First, it rarely puts debt and deficit numbers in any context. Telling readers that the debt will grow by $4 trillion over the next decade due to tax cuts is a meaningless statement to nearly all of its readers, who have no idea how large $4 trillion is. It would be a very simple matter to tell readers that this sum is approximately 2.3 percent of projected GDP over this period.

It also would be important to point out that debt accrued in a period of high unemployment, like the present, does not have to impose any current or future burden on the public since it can be fully financed by the Fed. If the Fed buys and holds the bonds used to finance the debt then the money paid by the government in interest would be refunded by the Fed every year creating no net interest burden for the government. Currently the Fed is refunding $77 billion a year to the government, more than one-third of the interest paid out by the government.

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The NYT had a front page article on the decision by regulators in the United States and Europe to restrict access to Avandia, a major drug for treating diabetes. The reason for the restriction was a new study that linked the drug to tens of thousands of heart attacks.

This assessment was based on an independent analysis of data from GlaxoSmithKline, the manufacturer of the drug. GlaxoSmithKline did not do (or report) this analysis itself even though it had the data. The patent monopoly on Avandia granted by the government gave GlaxoSmithKline a strong incentive not to find the potential dangers of its drug. This failure of big government should have been noted in this article. (There are more efficient alternatives to patent monopolies for supporting prescription drug research.) 

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The Washington Post ran another front page editorial calling for cuts to Social Security. The context was a discussion of the Republicans' "Pledge to America." The editorial complained that the plan did not include any concrete ways to deal with Social Security.

It then suggested that three ways that the Republicans should look to put the system into long-term balance: "raising the Social Security retirement age, changing the cost-of-living formula, offering personal or private accounts." The first two measures are ones that are strongly supported by the Post editorial board (hence their appearance in this front page editorial), but strongly opposed by the vast majority of the public.

Insofar as it is necessary to address a funding gap (projections from the Congressional Budget Office show the program is fully solvent for the next 29 years with no changes whatsoever), polls show that the public overwhelmingly favors raising the cap on income subject to the payroll tax. Currently, high income workers only pay the Social Security tax on their first $106,000 in wages. Polls also show that the public much prefers even an increase in the tax rate itself to the cuts pushed by the Post editorial board.

It is also worth noting that offering private accounts is not a route toward improving the program's finances. Private accounts worsen the finances of Social Security by pulling money out of the system. This would be like a family facing budget problems deciding to buy a new car to help the situation. Private accounts may be an effective way to get fee income to Wall Street banks, but they do not help the finances of Social Security.

The article also reports on the Republicans calls for a "full accounting" of Social Security, Medicare, and Medicaid. It would have been appropriate to point out that there is already a very full accounting of these programs. The trustees of both Social Security and Medicare issue lengthy accounts of the programs' finances each year. (They do refuse to disclose the documents that provide the basis for these projections. However, the Republicans did not imply that they would make these public.) The Congressional Budget Office does regular analyses of all three programs. The Government Accountability Office also periodically evaluates specific issues connected with these programs on request from members of Congress as does the Congressional Research Service. In addition, the Centers for Medicare and Medicaid Research does extensive analysis of Medicare and Medicaid, along with other government health care programs.

In this context, the Republican call for a "full accounting" would appear to be a quest for a pointless government bureaucracy that would duplicate work already being done. A serious news article would have called attention to the Republicans' push for needless bureaucracy.

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Reporters for the NYT who write on economic policy issues should know the way government bonds work. However, that is apparently not the case with Matt Bai. In defending an earlier article in which he referred to the bonds held by the trust fund as "iou's," Bai responded to a reader's question:

"The principle to which you’re referring is that the government guaranteed all of this Social Security surplus money (which it spent) with Treasury Bills. The reality is that redeeming that trillions of dollars in debt would require issuing trillions more in debt."

Bai's statement is of course true, but that is the case with all government debt. For example, suppose Mr. Bai decided to buy $100,000 of 30-year Treasury bonds. If he did this the government would turn around and spend the money that Bai had lent it. Bai seems to think there is something sinister in this story, but in fact that is usually what happens when a government or company issues bonds: it spends the money.

Thirty years from now, in 2040, Bai will go to cash in his bonds. When he does this, the government will be forced to borrow another $100,000.

This is the same story as the bonds held by Social Security. It is really very, very simple. The government will have to redeem these bonds just like any other bonds. Now, Mr. Bai apparently wants the government to default on the bonds held by Social Security. It could do this just like it could default on any of the bonds it has issued.

The people who would not get the Social Security benefits that they had paid for certainly would have good cause to be very angry if this happened, since it is a policy that is difficult to justify. Of course they may advocate that the country default on its other bonds, which might be appropriate if the country really is in such bad fiscal shape that it can't meet its obligations to its retirees.

As a practical matter, Bai is badly confused about the nature of the country's debt burden. The debt that the country is now accumulating because of the downturn need not pose any long-term fiscal burden since the Fed can just hold the bonds and repay the interest to the government.

The longer-term projections showing a serious deficit problem are all driven by projections of exploding health care costs. If we don't fix our health care system then we will face serious economic problems, one of which will be the budget deficit. However, as all economists know, the real problem is with the health care system.

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That fact would have been featured prominently in a good article reporting on the Republicans' "Pledge to America" and the response from the Democratic leadership in Congress. Instead, the Post reported without comment a statement from Speaker Pelosi's office that criticized Republicans for wanting to:

"turn Social Security from a guaranteed benefit into a guaranteed gamble."

This is a bizarre statement, since the Republican plan does not propose privatizing Social Security. The immediate threat facing Social Security are the plans to cut benefits and raise the retirement age, which are being considered by President Obama's deficit commission. Both the Republican and Democratic co-chairs of the commission have indicated support for this route.

It would have been worth pointing out that Speaker Pelosi's statement addressed a policy that is not currently on the agenda, while ignoring one that is. It would be comparable to coming out against the invasion of Brazil in the fall of 2002 when the country was debating the invasion of Iraq.

It is probably worth noting that the Post strongly supports cuts to Social Security.

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There was virtually no decline in the real value of the dollar against the Chinese yuan during President Bush's presidency. This fact is an important point to mention in a Post article that told readers:

"The Obama administration, like the Bush administration before it, has preferred to address the currency issue through diplomatic channels."

The article misleadingly tells readers that, "negotiations won a 20 percent rise in the yuan during President George W. Bush's tenure." Virtually all of this increase was offset by the more rapid inflation rate in the United States, so the real value of the yuan against the dollar -- the relevant variable for trade -- changed little during the Bush years.

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David Leonhardt examines the prospective impact of a rise in China's currency on the U.S. trade deficit with China. He concludes that the impact might be limited for two reasons.

First he argues that much production might be transferred to countries with even lower cost labor, like Vietnam. Second, he notes that much of the value-added of goods that we import from China actually comes from third countries. The items are simply assembled in China. The rise in the value of the yuan would only affect the cost of assembly, not the cost of the other inputs, which may account for most of the value.

While both of these points are valid, there are important qualifications to each. Many other developing countries also peg their currency, either formally or informally, to the dollar. If China were to substantially raise the value of its currency, they would likely follow suit, since they are trying consciously to maintain the same competitive position vis-a-vis China. This was the experience the last time China substantially raised the value of its currency in 2007.

The point about China assembling items that involve inputs from other countries ignores the flip side of this story: there are many goods imported from countries like Japan and Germany that have substantial inputs from China. If the value of the yuan rises relative to the dollar, then these imports would be more expensive in the United States, making people here more likely to buy domestically produced goods. This will help the U.S. trade balance even though it will not be picked up in the trade balance with China.

Finally, the discussion of the relationship of the yen and the dollar is inadequate since it ignores the huge difference in relative inflation rates in the two countries. Since 1990 prices in Japan have fallen by more than 10 percent. They have risen by more than 50 percent in the United States. This means that to keep the trade situation from changing, the yen should have risen by more than 60 percent over this period.

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Most newspapers make an effort to separate their news reporting from their editorial pages: not the Washington Post. It routinely uses its news pages to push the economic agenda favored by its editors.

Today it told readers that "the national debt is soaring to worrisome levels." It is not clear why anyone who understands economics would find current debt levels "worrisome." Since the debt is being incurred in a context where the economy has vast amounts of idle resources, current deficits pose no real burden on the economy. If the deficit were smaller, the economy would be smaller and the unemployment rate would be higher.

In contrast to the Washington Post, financial markets do not find the government debt the least bit worrisome. They are willing to buy long-term government debt at interest rates below 3.0 percent.

The debt also need pose no burden in future years. There is no reason why the Federal Reserve Board cannot simply buy and hold the bonds issued to finance the debt. In this situation, the debt accrued in these years will impose no additional future tax burden. The interest on the debt will be paid to the Fed, which will then rebate it to the Treasury.

In ordinary times, this approach would lead to inflation, however this is not a problem in the current situation. In fact, most economists agree that a somewhat higher inflation rate would be desirable at the moment. (The Fed is currently buying large amounts of government debt, although it is expected to resell these bonds at some future point.) If the Fed were to continue to hold the bonds it would eliminate most of the deficit problem discussed in this article.

This article relies on no sources who disagree with the Post's editorial position. In fact, the first "expert" cited is Robert Bixby, the executive director of the Peter Peterson funded Concord Coalition.

 

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The Washington Post had an article touting Brazil's recent growth, implying that it is a growing regional powerhouse, at least in part at the expense of its neighbor. Actually, Argentina has been growing considerably more rapidly since 2003, the period discussed in the article.

According to the IMF, growth since 2003 has averaged 6.6 percent annually in Argentina. It has averaged just 4.2 percent in Brazil. It is worth noting that Argentina defaulted on its debt in 2001 and pursued economic policies that were widely condemned by both the IMF and most of the economic policy establishment.

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The Washington Post told readers that President Obama's health care plan leaves drug prices to the market. This is not true.The plan leaves in place government issued patent monopolies that raise prices by many times above their competitive market price.

At one point the piece notes that the health care plan's closing of the "doughnut hole" for prescription drugs in Medicare would cost the drug companies $32 billion over the next decade. It would have been helpful to inform readers that this is less than 1 percent of projected spending on prescription drugs over this period.

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There is an effort by many of the economists who could not see the $8 trillion housing bubble that wrecked the economy to say that there is nothing that we can do about the damage because unemployment is structural, not cyclical. This means that the problem is that workers have the wrong skills for the jobs that are available or are in the wrong location. If this is the case, then the problem is not insufficient demand, the problem is with the workers who are unemployed. (Yes, this is another "blame the workers" story.)

The NYT lent space to Narayana R. Kocherlakota, president of the Minneapolis Fed, to present this argument. Mr. Kocherlakota referred to statistics showing a large number of job openings.

Actually, the statistics do not show that the number of job openings is anywhere close to the number of unemployed workers. The most recent data show the number of openings at just over 3 million, a bit more than 1 opening for every 5 unemployed workers. This is still down by more than one-third from pre-recession levels.

It is also worth noting that we don't see evidence of the other factors that would be consistent with growing structural unemployment. This mismatch story would imply that there are sectors of the economy in which wages are rising rapidly and average hours per worker are increasing, as employers increase hours due to their inability to find qualified workers. There is no major sector of the economy that fits this description.


[Addendum: the original mistakenly said "one opening for every unemployed worker," rather than one opening for every five unemployed workers. Thanks to Tom for catching this.]

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Robert Samuelson is apparently very worried about the loss of "up to 12,000" jobs due to President Obama's temporary moratorium on oil drilling in the Gulf. For context, this job loss is less than 0.01 percent of total employment. It is a bit more than a typical day's job growth in the years 1996-2000.

Samuelson is also concerned about President Obama's plan to allow President Bush's tax cut for the wealthy to expire. He cites figures from Mark Zandi, that the wealthiest 2 percent of the population "represent almost a quarter of all consumer spending" (italics in original).

While it is true that the richest 2 percent impose a hugely disproportionate strain on the economy's resources, the relevant issue is their marginal propensity to consume. All studies, including those by Zandi, show that the marginal propensity of the rich to consume is very low. In other words, if we give Bill Gates another $20 million in tax breaks, it is unlikely to affect his consumption to any significant extent. 

Samuelson also points out that many small business owners will be affected by the end of the Bush tax cuts. The vast majority of the small business owners who are affected will see a trivial increase in their tax bill. The Joint Tax Committee of Congress projected that the average tax hit on tax filers with incomes between $200,000 and $500,000 (the vast majority of the affected small businesses) would see an increase in their taxes of just $500. This is unlikely to have much impact on their hiring and growth. It is also worth noting that the higher Clinton era tax rates were in place in the late 90s when the economy was generating more than 8,000 jobs a day.

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The Washington Post told readers that this week's reports on home sales are expected to show increases which it describes as "a sign the U.S. real estate market is stabilizing." It's not clear what the Post means by stabilizing.

While the number of homes being sold each month is likely to remain reasonably even in the months ahead, prices are likely to resume their fall. They still have another 15-20 percent to drop in order for the bubble to fully deflate and prices to return to their long-term trend.

It would be helpful if the Post did not rely exclusively on experts who completely missed the $8 trillion housing bubble. During the years the bubble was expanding the Post's main source on the housing market 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.

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The NYT had a useful piece on the exchange rate between the Chinese yuan and the U.S. dollar, however it ignored the fact that the United States does not have to ask China to raise the value of its currency. The United States could unilaterally set a lower value for the dollar against the yuan.

For example, it could announce that it would exchange dollars at the rate of 5 yuan to a dollar beginning at some date in the future. While it is illegal for Chinese firms and individuals to take large amounts of currency out of the country, it is likely that many would be able to evade the law for this sort of profit.

If the U.S. were to offer this exchange rate, it is likely that it would quickly become the effective exchange rate. More importantly, if the United States made clear to China that it was prepared to go this route, then it is likely that China would negotiate a path toward a lower valued dollar.

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Readers of an article on clinical trials for a new melanoma drug might think that the NYT prohibits such discussion. The gist of the NYT article is that some people may end up dying because they were selected for the control group rather than the treatment group for an effective drug.

A more serious article would have explored the comment buried in the middle of the article:

"The surest way to get the F.D.A.’s endorsement for a broader market was a controlled trial. And with its competitors rushing to get similar drugs to market, the findings of such a trial might give Roche an advantage in marketing its version as the only one proven to prolong survival."

This is an incredible statement that largely negates the point of the article. Is the purpose of the clinical test to get Roche more profit or is to find out more information about the effectiveness of a drug? Readers do not know.

Suppose that all drug test results were fully public and the patents were placed in the public domain. Would the same issues still exist?

Readers of this article have no idea as to whether the clinical test in question is being done for purely competitive reasons or whether it is necessary to determine the effectiveness of a specific treatment. A serious piece would make this issue clear. Unfortunately, this piece seeks to exploit the tragedy of a young man's death for no obvious purpose whatsoever.

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The Washington Post ran an article with the headline: "how a touch of inflation could boost the economy." Give them credit for finally getting something about the economy right.

Of course the article did not go so far as to mention the idea of the Fed deliberately targeting a higher inflation rate in the range of 3-4 percent. This policy has been advocated by such well-known radicals as Greg Mankiw, President Bush's former top economic advisor, Olivier Blanchard, the chief economist at the IMF, and Federal Reserve Board Chairman Ben Bernanke.

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