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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For some reason the people at the Washington Post cannot figure out how currency values affect trade. This is the only conclusion that can be drawn from a front page article that reports on Germany's success, relative to the United States, in exporting to China.

The article does not once mention the relative values of the euro and the dollar in talking about the surge in Germany's exports. At the risk of boring those who have taken an intro econ class, the relationship is very simple and fundamental.

China must buy the currency of the exporting country in order to buy the goods that are being exported. If the foreign currency costs more (measured in yuan, the Chinese currency), then the export costs more. The dollar has risen by roughly 20 percent against the euro since the start of the crisis. This means that to people living in China, the goods exported from the United States have risen in cost by 20 percent relative to the price of goods exported from Germany. It would be comparable to a situation in which China slapped a tariff of 20 percent on all goods exported from the United States.

A serious discussion of Germany's relative success in exporting to China would mention this change in currency values, just as it would mention a 20 percent Chinese tariffs on imports from the United States, if one existed. While Germany has pursued other policies that have helped to support its manufacturing sector, these have not changed appreciably in the last three years and therefore cannot explain the recent surge in exports.

It is also worth noting that Germany's growth since the crisis has actually been slightly slower than that of the United States. The reason why its unemployment rate is lower than the rate in the United States (it has actually below its pre-recession level) is due to Germany's labor market policy. Its efforts to encourage firms to retain workers, including its promotion of worksharing, have been enormously successful in sustaining employment so that German workers have not suffered in the same way as U.S. workers from this downturn. (It is also worth noting that Germany's unemployment rate is 6.9 percent using the standardized methodology in place in the United States, not the 7.6 percent reported in this article.)

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Most of the elite have contempt for the portion of the American population that does not have at least 6-figure incomes, however the Washington Post stands out in its willingness to express this contempt so openly. Back in the fall of 2008, when the government was crafting bailouts worth tens of millions of dollars to the likes of Robert Rubin, Lloyd Blankfein, and other well-connected Wall Street types, the Post was frothing at the idea that the government might help protect the jobs of autoworkers earning $27 an hour.

This contempt was fully visible again today when the Post ran an editorial complaining that UAW members who were employees of Delphi, GM's former auto parts division, would get their full pensions. By contrast, the editorial complained that Delphi's management personnel had their pension plan taken over by the Pension Benefit Guarantee Corporation (PBGC) and as a result would get just "pennies on the dollar."

We all know how infuriating it must be to the Post that ordinary working people might get pensions that can sustain a middle class living standard, but they are entitled to their class hatred. However the "pennies on the dollar" claim is more than a bit of a stretch. The PBGC guarantees a benefit of up to $4,500 a month for a worker retiring at age 65. That may be "pennies on the dollar" in Washington Post land, but it's more than most of the rest of us can expect to live on in retirement.

It's true that workers who retire at younger ages will likely take substantial hits on their pension, but this is more likely to be an issue for UAW members who do manual labor on the factory floor than the management personnel who hold desk jobs. The latter are certainly better positioned to work into their 60s than the former.

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Jay Bookman, at the Atlanta Journal Constitution did a very simple analysis of the benefits of Reagan-Bush style tax cuts. He compared the growth of investment and growth in the low-tax Reagan-Bush years with the higher tax Clinton years. Read the piece to see what it shows.

No, it's not conclusive. There were many factors other than tax rates at work. But, if the tax cuts really did have a big effect in boosting growth, they would counteract most of these other factors.

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The Washington Post had a page two article discussing the prospects for the renewal of the Bush tax cuts. In the middle of the piece it notes that many Democrats are supporting President Obama's plan to phase out the tax cuts for the wealthy, "given the gravity of the country's deficit problems."

The "gravity" of the country's deficit problems is the Post's invention, not something that either exists in the world or is attributed as an expressed concern by any of the actors discussed in the article. This sort of statement belongs on the opinion page, not in the news section.

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The Washington Post used the release of new Census data on poverty to promote its fairy tale view of U.S. politics. According to the Post: 

"The statistics have quickly become fodder for a debate on the proper role of government in combating economic downturns."

It is not clear what the Post thinks it means by this assertion. Immediately following this statement the article presents two quotes from conservatives who argue that it is important to get the economy growing to combat poverty. It then notes that Congress approved increased jobless benefits over the summer.

It is almost certainly the case that all of the proponents of increased jobless benefits also believe that stronger economic growth is the best way to combat poverty. It is also true that the vast majority of economists agree that increased jobless benefits in the middle of a steep downturn, like the current one, lead to increased growth. These benefits will be quickly spent, spurring demand. Since lack of demand is the main constraint on growth at present, almost anything that spurs demand will spur growth.

In short, the Post has invented a fairy tale about a debate on "the proper role of government in combating economic downturns." There is no such debate in Washington politics. The real debate is between people who want to use the government to shift income upward and those who would rather see the less wealthy majority share the benefits of economic growth.

The Post article also includes a somewhat bizarre quote from Michael D. Tanner, a senior fellow at the CATO Institute:

"We're spending more money fighting poverty than ever before, yet poverty is up. Clearly, we're doing something wrong."

This is comparable to noting that we used a lot of water to combat a really huge fire, yet the fire still did lots of damage, and then concluding that water does not help against fire. Unless the argument is that anti-poverty spending somehow caused the recession, it is not clear how this statement makes sense. The Post has no obligation to print such statements just because someone at a prominent conservative think tank made them.

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The Washington Post tried to be helpful in putting various budget items in context by comparing different expenditures/tax proposals. Specifically, it compared the costs of the Bush tax cuts, President Obama's stimulus package, and the TARP. While the comparisons are useful, they are still misleading.

The article points out that the projected 10-year cost of the Bush tax cuts vastly exceeds the $787 billion stimulus package. It also points out that if the tax cuts are extended indefinitely then the government will be receiving lower tax revenue in eternity. 

While the piece is correct in noting that the lost tax revenue will far exceed the cost of the stimulus, it is important to note the timing. There is no plausible argument that the stimulus crowded out any private investment at all. In fact, by almost every reasonable account the stimulus led to increased private investment by boosting demand. In this sense there was zero economic cost to the stimulus.

There is no reason that the Fed could not simply buy and hold forever the debt used to finance the stimulus. This would mean that the stimulus would have effectively added zero to the nation's debt burden, since the interest on these bonds would be paid to the Fed and then refunded directly to the Treasury.

The story of the tax cuts is more mixed. As long as the economy is far below full employment levels of output, tax cuts could also be financed with debt purchased and held by the Fed. However, at some point in the next ten years presumably the economy will be closer to full employment. At that point, if the Fed were to buy and hold the bonds it would lead to inflation. In this case, the tax cuts would be added to the country's debt burden.

However, it is also worth a bit of caution in assessing the long-term impact of the tax cut. Whatever the Congress does in 2010 cannot bind future Congresses for all time. While it may be interesting to ask about the cost of a measure for a long period of time as a point of information, this Congress lacks the power to preserve the Bush tax cuts for eternity.

It is also important to note that the bulk of the cost to taxpayers from the TARP will not be the $66 billion call on the budget noted in the article. Absent the TARP and related measures, Citigroup, Goldman Sachs, Morgan Stanley, Bank of America, along with many other banks, would have gone bankrupt. The government likely would have ended up seizing them and then selling off their assets. 

This would almost certainly have resulted in a situation where the financial sector accounted for a much smaller share of economic activity. Before the crisis, the narrow securities and investment trust sectors accounted for 2.5 percent of private sector output. Thirty years ago these sectors accounted for about 0.5 percent of private sector output.

If the collapse of these financial institutions led this sector contract halfway back to its former share of the economy, then it would have reduced its drain on the economy's resources by an amount equal to approximately 1 percent of private sector GDP, or $120 billion a year. This would come to about $1.5 trillion over the next decade.

This cost will be born in increased demand for goods and services that will lead to inflation unless the government and/or the Fed take steps to reduce demand elsewhere. While this cost may be less visible than pulling taxes directly out of people's pockets, the net effect is the same, the rest of the country will have less money to support their living standards.

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Suppose the United States gives a subsidy equal to 30 percent of the purchase price for people who buy imported goods. It also taxes all goods that are exported from the United States by 30 percent. This subsidy and tariff regime would likely have a substantial effect on international competitiveness.

The Washington Post does not see it that way. A front page article that discussed the production of energy efficient light bulbs, and the factors determining plant location, did not once mention currency values.

This reflects an incredible level of incompetence. It would be like discussing the Louisiana fishing industry without discussing the BP oil spill.

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That could have been the headline of an article reporting former Federal Reserve Board Chairman Alan Greenspan's negative assessment of the stimulus. But, hey this is the Wall Street Journal. Add a comment

The media are anxious to find good economic news, hence they seized on the August retail sales data as evidence that the economy is moving forward again. While the 0.6 percent reported growth in non-auto sales is somewhat better than expected, it is somewhat less impressive when we remember that the July data were revised down by 0.1 percentage point.

Also, much of the growth was driven by higher gasoline sales, which is most likely due to higher prices rather than more consumption. Non-auto, non-gas sales were 0.5 percent higher than in August than in July and just 0.3 percent about the June level. This is not exactly robust growth.

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This phrase could have appeared in a Washington Post article that noted many conservative Democrats are now supporting the extension of the tax cuts even to high income taxpayers. Instead the article attributed the switch in sentiments to concerns about a "weakening economy." It is worth noting that the congresspeople in question have not been known for their concerns about unemployment at other times. 

At one point the article asserts that: "Democrats will also take on the forces of globalization." It is not clear what taking on the forces of globalization means. Is someone who proposes a trade agreement "taking on the forces of globalization?" There seems to be some implication that the Democrats are pushing back against some predetermined "forces of globalization," but of course no such thing exists.

Everyone wants to shape globalization in certain ways. For example, the software, entertainment, and pharmaceutical industries all want to impose increased copyright and patent protection throughout the world. This could be described as attempting to "take on the forces of globalization" with much greater accuracy than the measures described in this article.

The article also refers to efforts to recover $15-18 billion in revenue over the next decade to cover the cost of various proposals. This is equal to approximately 0.05 percent of projected revenue over this period.

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This is the clear implication of a new industry funded study, even if USA Today essentially ran an ad for the pharmaceutical industry by headlining its piece: "growing problem of fake drugs endangers consumers' health." The article highlighted the fact that unauthorized copies of drugs sometimes do not meet the same standards as the official version, but also notes that: "counterfeiters are now able to fake drugs so well that even experts find it hard to distinguish the copies from the real deal." This implies that often the unauthorized versions will be every bit as good as the brand drugs.

According to the article, the study finds that the unauthorized drug market is between $75 billion and $200 billion a year, but adds: "the market is likely much bigger because many cases are hard to detect." If we assume an average prescription price of $2 (many of these drugs are sold in the developing world), then this implies that the unauthorized market involves sales of 37 billion to 100 billion prescriptions year. If 1 in 1000 of these prescriptions save a life (because the patient could not afford the authorized version), then unauthorized drugs save between 37 million and 100 people a year.

In an act of unbelievable sloppiness this article fails to distinguish between unauthorized copies, where the buyer knows that they are not getting the brand drug and genuine counterfeits, where the buyer is deceived about the drug they are buying. It also would have been helpful to include a discussion of alternatives to patent support for prescription drug research. Government imposed patent monopolies are the root cause of the high prices that create a huge market for unauthorized copies of drugs.

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The Washington Post likes to run columns that are chock full of mistakes so that readers can have fun picking them apart. That is why George Will's columns appear twice a week. Let's have a little fun with the latest, which is an attack on President Obama's economic agenda.

First, Will is anxious to tell readers that Democrats are telling the public that stimulus did not work because many think we need more stimulus. Actually, people who think we need more stimulus simply note that the stimulus was helpful, but not large enough for the task. According to the Congressional Budget Office, the stimulus added between 1.7 and 4.5 percent to GDP since its enactment (that's between $240 billion and $740 billion in additional output). It also lowered the unemployment rate by between 0.7 and 1.8 percentage points.

This was not enough to fully offset the damage from the collapse of an $8 trillion housing bubble. The collapse wiped out more than $1.2 trillion in annual demand (roughly $600 billion in lost consumption and $600 billion in lost construction). By comparison, the stimulus injected about $300 billion a year into the economy in 2009 and 2010. Roughly half of this was offset by cutbacks at the state and local level. So, we were looking at a net increase government sector stimulus of $150 billion, which was being used to counteract a decline in private sector demand of $1.2 trillion. 

Is anyone surprised that this was not enough? Will's conclusion that stimulus does not work is like seeing someone throw a few buckets of water on their burning house and then telling the fire department not to waste time with their hoses, because obviously water will not be effective against the fire.

Will then goes on to tell readers that Herbert Hoover was a great supporter of fiscal stimulus. Actually, real spending did increase under Hoover, but this was primarily because of the huge deflation of the era. In any case, the facts do not support Will's claim that:

"Real per capita federal expenditures almost doubled between 1929, Hoover's first year as president, and 1932, his last."

Actually, real federal expenditures rose by less than 20 percent if we follow Will and take 1932 as the endpoint. If we include 1933, which was partially a Hoover budget, then the increase is still just 44.9 percent. That is substantial, but certainly not "almost doubled."

Will goes on to complain that:

"Barack Obama has self-nullifying plans for stimulating the small-business sector that creates most new jobs. He has just endorsed tax relief for such businesses but opposes extension of the Bush tax cuts for high-income filers, who include small businesses with 48 percent of that sector's earnings."

Actually, most of the businesses whose taxes will be affected by the increase will only be trivially impacted. According to an analysis from the Congressional Joint Committee on Taxation, the average tax hit from Obama's plan on filers earning between $200,000 and $500,000 (the overwhelming majority of the affected small business owners) is $400. It is unlikely that a tax increase of $400 will have a big effect on the investment or hiring decisions of a business netting $350,000 a year. 

Therefore, the answer to question posed by Will: "does this increase anyone's confidence?" is almost certainly that it probably has almost no impact on anyone's confidence since it is largely irrelevant to the decisions of the vast majority of businesses.

Finally, Will ends by making a simple mistake of logic. He wants to beat up on the Cash for Clunkers program by arguing that only 1 in 6 of the cars purchases under the program were actually induced by the tax credit, as opposed to simply moving up a purchase that would have taken place anyhow.

While one may hope for a better ratio (and others have calculated higher ratios), since spending at a time of very high unemployment is essentially free, who cares? If we did not have the cash for clunkers program, fewer people would have bought more fuel efficient cars. The unemployment rate would be higher and we would be consuming more energy and emitting more greenhouse gases. How is that good? 

Will also complains that Cash for Clunkers hit poor people by raising the price of used cars. While it definitely did raise the price of used cars, most poor people already own cars. This means that Cash for Clunkers raised the price of the cars they own. For poor car owners this picture is largely a wash, their next car will cost more, but they will get more money on a trade-in. First time buyers are unambiguously hurt, but this is a minority of the poor.



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Then they wouldn't write ridiculous things like: "our generation’s leaders never dare utter the word 'sacrifice.' All solutions must be painless." If someone told Friedman about the recession, that nearly 15 million people are unemployed, that nearly 9 million are underemployed, and millions more have given up working all together, then he would not be saying nonsense about how baby boomers are looking for painless solutions.

On this planet, the vast majority of baby boomers, who have to work for a living, are already experiencing vast amounts of pain. What planet does Mr. Friedman live on and why on earth is he given space in the NYT to spew utter nonsense?

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Apparently not, since they feel the need to constantly tell readers in the news section that the paper considers the deficit/debt to be too large. There is no information added by the inclusion of the word "ballooning" in this sentence: "The specter of a ballooning national debt has led even some of the early supporters of the cuts, including the former Federal Reserve chairman Alan Greenspan, to advocate letting them expire." 

The sentence could have been more accurate and shorter if told readers that Mr. Greenspan claims (the reporter does not know Greenspan's real views on the economy) that concerns over the national debt cause him to advocate letting the tax cuts expire. 

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The Post ran a badly confused article on unauthorized drugs and the harm they allegedly cause. The article uses the terms "counterfeit" and "fake" indiscriminately. It reports that some of the drugs bear the names of major manufacturers, indicating that many do not. Only the former can be viewed as "counterfeits."

The drugs that are not falsely sold as the products of major manufacturers are bought by people who understand that they are not buying a drug produced by a major drug company. This means that they are likely buying the drug because it sells for a price that is far below the price of the drugs sold by the major manufacturers.

For this reason, the article's assertion that:

"Experts say the global fake-drug industry, worth about $90 billion, causes the deaths of almost 1 million people a year and is contributing to a rise in drug resistance,"

is absurd on its face. The vast majority of the people buying these drugs would almost certainly not be able to afford the drugs produced by the major drug companies. If the $90 billion figure is true, then this implies that people around the world are buying tens of billions of prescriptions of unauthorized drugs. (Legal generics often sell for $4 at major retail chains in the United States. Presumably, unauthorized copies sell for much less in the developing world.)

While not all of these prescriptions involve life-saving drugs, even if just one in a thousand of these prescriptions is for a life-saving drug then the information in the article implies that unauthorized drugs are saving tens of millions of lives every year. Of course if we used a more efficient mechanism than patents to finance research then people around the world would be able to get high quality drugs at low prices.


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Wessel did not use exactly those words, but he told listeners that the only option that the Fed still has to boost the economy is to buy more long-term bonds. In 1999, when he was still a professor at Princeton, Bernanke wrote that, in similar circumstances Japan's central bank should deliberately target a higher inflation rate in the range of 3-4 percent.

This was an idea that was originally proposed by Paul Krugman and has more recently been suggested by Greg Mankiw, President Bush's top economic advisor, and Olivier Blanchard, the chief economist at the IMF. It would be interesting to know how Mr. Wessel determined that this idea is not a possible policy option.

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That's right, the Dallas Cowboys scored 14 points. In a separate game, the New York Giants got 9 points. This is what the Post's sports section would look like if it reported on football the same way the business section reports on trade.

An article on a Steelworkers' complaint against China for unfairly subsidizing its clean energy industries concluding by reporting that:

"Undersecretary of Commerce for International Trade Francisco Sanchez noted that the overall numbers showed 'very bright spots' for U.S. exports to fast-growing Asian and Latin American nations. He added that exports throughout major southeast Asian nations were up 40 percent this year amid strong regional economic growth."

The employment impact on trade is determined by the trade balance, as Mr. Sanchez presumably knows. The trade deficit with most developing countries has been worsening over the last year. For example, the trade deficit in goods with India was $2.8 billion through July of 2009, the deficit with Thailand was $6.4 billion. The corresponding numbers for 2010 are a deficit of $6.0 billion with India and $7.4 billion with Thailand. In other words, the trends are going the wrong way, the United States is losing more jobs because of trade, not fewer.   

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In another fascinating piece of creative economics David Brooks tells us: "we can get distracted by short-term stimulus debates, but those are irrelevant by now." Okay folks, just get used to 9.6 percent unemployment, Mr. Brooks says that there is nothing can be done.

The column is chock full of observations that most people did not know, probably because they are not true. For example, Brooks tells us that if more people follow the recommendation of Michelle Obama and go into teaching and service occupations then it will make the country poorer.

That's an interesting thought. Would the country be worse off if most teachers came from the top quartile in their classes rather than further down the ladder? I certainly did not know this.

As for other service occupations, the country certainly could have used more competent and honest economists. We are losing more than $1.4 trillion a year (@$19,000 for a family of four) due to the recession caused by the collapse of the housing bubble. If we had more competent economists, then the bubble never would have been allowed to grow to such dangerous levels. We can call this $19,000 in lost output a year the "incompetent economist tax." (By way of comparison, toward the middle of next year the incompetent economist tax will exceed the size of the 75-year projected shortfall in the Social Security trust fund.)

Competent economists could make us richer in other ways. For example, we spend close to $300 billion a year on prescription drugs. These drugs would cost roughly one-tenth as much if patent monopolies did not allow drug companies to sell their drugs at prices far above their competitive market price. Competent economists could develop more efficient mechanisms for financing prescription drug research, thereby saving us hundreds of billions of dollars a year.

Even Mr. Brooks' key concern, a lack of people going into engineering, could be addressed in large part of a bit of competent economics. Manufacturing in the United States is at an enormous competitive disadvantage because of the over-valued dollar. If the dollar is 30 percent over-valued, then it means that we are effectively providing a subsidy of 30 percent for imports and imposing a tariff of 30 percent on exports. As people who understand economics know, the over-valued dollar is the main reason that we have a trade deficit.

If we got the dollar down, then our manufacturing industry would be much more competitive. This would make careers in engineering more attractive relative to the alternatives. Then we would have more people entering engineering and David Brooks would be happy.

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BTP doesn't ordinarily focus on blogs, but Paul Krugman's blog is widely read, and most of us expect him to be right, so it is a big deal when he gets an important point wrong. This morning he told readers that part of the explanation for Japan's decline in per capita income relative to the U.S. is due to its aging population. He argues that his has led to a drop in the percentage of working age people in the population, which has led to a drop in per capita output.

A quick trip over to the OECD's data base tells a somewhat different story. While the ratio of working age people to population did fall in Japan over this period, we also see a rather dramatic decline in average hours worked per worker. Average annual hours per worker dropped by 7.0 percent from 1992 to 2008.

This indicates that there was no shortage of potential labor in Japan over this period. If Japan had pursued policies that generated demand, there is no reason to believe that its workforce would not have supplied the necessary labor, inspite of the decline in the percentage of working age people in the population. In other words, Japan's economy was demand constrained, not supply constrained.

This doesn't mean that there are not circumstance under which Japan's population could become supply constrained, it's just that these circumstances did not exist in the stagnation of the last 18 years. This is sort of like a baseball team that is reduced by injuries to 23 players on its roster (rather than the usual 25), which gets beat 24-2 as a result of an awful performance by its starting pitcher and the early relievers. It may matter at some point that the team only has 23 players to draw upon, but that would not have been the issue in this particular loss.

This point is important because there is a whole industry devoted to scaring the public about the demographic changes that the United States is now experiencing. While these changes will certainly affect the economy, they will not be the main determinants of living standards. The success or failure of economic policy will dwarf the impact that projected decline in the ratio of workers to retirees will have on well-being.  

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The NYT has a front page piece on how low interest rates are hurting people who live on their saving. While interest rates are low, it would have been worth noting that the inflation rate is also very low. This is important to take into account in this sort of discussion, since the inflation rate had typically been higher in prior decades.

The real interest rate, the interest rate minus the inflation rate is the true return to savers. If the interest rate is 3 percent and the inflation rate is 3 percent, then the real value of a person's savings would erode by by 3 percent a year, if they spent all of their interest. Currently the inflation rate is close to 1 percent, which means that the real value of savings is only be reduced by 1 percent annually if a person spends their interest.

Real interest rates are low at present, which is a deliberate policy, but just reporting on the nominal rates presents a distorted picture of the situation facing savers.


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David Leonhardt has an interesting piece on house prices but ends up making a serious logical error. He argues that house prices typically keep pace with income, meaning that they have risen more rapidly than inflation. He bases this assessment on the fact that the portion of income that has been devoted to to housing has remained constant over roughly the last 80 years.

There is a logical problem in this analysis. In principle, the issue is the movement of a the price of a house of the same quality, not the amount that people actually spend on housing. If the price of a house of the same quality rises in step with income, and the share of income devoted to housing remains constant, then this logically implies (i.e. there is no way around the conclusion), that the quality of housing has not increased over this period.

This would mean that the homes that people are buying today are no bigger or better than the homes that people bought 80 years ago. This contradicts an enormous amount of data and common sense. It is unlikely that anyone would seriously argue this case. Therefore, we can conclude that house prices have not kept pace with income growth. 

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