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).
That is what readers can infer from an article that celebrated efforts by governments to weaken public supports for workers and to undermine their bargaining power. The article is filled with vague assertions about these measures are being celebrated, for example the first sentence telles readers that"
"In the ashes of Europe's debt crisis, some see the seeds of long-term hope (emphasis added)."
"That's because the threat of bankruptcy is forcing governments to implement reforms that economists argue are necessary to help Europe prosper in a globalized world – but were long viewed as being politically impossible because of entrenched social attitudes."
The article does not point out that there are actually sharp differences among economists on whether Europe needs to make changes to "prosper in a globalized world." Unlike the United States, which has huge trade deficits, Europe has consistently had near balanced trade.
Some countries like Germany and Denmark have consistently run large trade surpluses, in spite of having very strong welfare states. This is why many economists, including the OECD in its official assessment of member state economies, argue that strong welfare states are entirely consistent with international competitiveness. This article implies that there is a consensus among economists that European welfare states must be weakened. There is not the case.Add a comment
In an interview with the Pittsburgh Tribune-Review laat week, House Minority Leader John Boehner called for cutting Social Security benefits to pay for the war in Afghanistan. Somehow, this comment passed largely unnoticed in the media, including a Washington Post column that discussed the interview.
The column complained that Boehner, "offered few concrete thoughts about the GOP agenda." It later went on to say:
"Nor did he seem eager to tip his hand on the terms of entitlement reform. In his interview with the Tribune-Review, Boehner volunteered that the Social Security retirement age might need to be raised to 70 for younger workers but he would go no further."
Boehner's suggested increase in the retirement age would be roughly equivalent to a 15 percent cut in benefits when it is fully phased in. Since most retirees are primarily dependent on their Social Security benefits for income, this would be comparable in many cases to a 15 percentage point increase in their income taxes. Furthermore, this cut will begin to hit near retirees soon, since it is a phased increase of three years in the retirement age that will be completed in 22 years.
One might think that this sort of cut to the nation's most important social program would be big news, but apparently it did not go far enough for the Washington Post. Of course Boehner actually did suggest further cuts in his interview. He also proposed (in a somewhat mangled form) to have initial benefits indexed to prices rather than wages. This implies reducing scheduled benefits by approximately 1.0 percent a year. Under this formula, after 10 years retirees will get 10 percent less than is provided under current law and after 20 years they would get approximately 20 percent less. (Compounding reduces the impact slightly.) While the full cut would only apply to workers at the maximum wage (@$106,000 at present), workers earning $70,000 a year would see cuts that are close to half this size.
In short, Mr. Boehner has proposed very large cuts to the country's most important social program, to pay for an unpopular war (the Congressional Budget Office projects that the trust fund will be fully solvent until 2043, so the cuts are not needed to keep SS itself solvent), and the Post dismisses his comments by saying that "he offered few concrete thoughts on the GOP agenda." It is difficult to imagine what Mr. Boehner would have to say to get the Post to take his proposals seriously.Add a comment
The NYT reported Thursday that manufacturers in Cleveland were having difficulty getting skilled workers. It turned out that the problem seemed to be that the managers interviewed in the article were not willing to pay the market wage for skilled workers, offering jobs that pay just $15-$20 an hour.
While the NYT may have been wrong about the shortage of skilled manufacturing workers in Cleveland, there does appear to be a shortage of skilled economics writers at the Washington Post. In his column today, Frank Ahrens warns readers that when they assess Paul Krugman's dismal forecast for the economy:
"you need to read him through a filter. He believes that the $787 billion government stimulus approved last year was not enough to really kick-start the economy and that much more is needed."
While $787 billion is a big number, people who understand the economy would compare it to the gap the stimulus was intended to fill rather than just be awed by the size. The collapse of the housing bubble cost the economy more than $500 billion in annual construction spending (both residential and non-residential). It lost approximately the same amount of of annual consumption spending as homeowners cut back consumption in response to the loss of $6 trillion in home equity.
The $787 stimulus package was supposed to replace more than $1 trillion in annual demand. The stimulus package included a technical fix to the tax code of approximately $80 billion that provided no real stimulus. It also included around $100 billion that would be spent in 2011 and later. This left about $600 billion to be spent in 2009 and 2010, or $300 billion a year. Roughly half of this increased in spending at the federal level was offset by cutbacks at the state and local level, leaving $150 billion a year in net stimulus from the government sector to offset a loss of more than $1 trillion in annual spending from the private sector.
People who know economics would think that a $150 billion in net government stimulus is insufficient to offset a loss of more than $1 trillion. Unfortunately, Mr. Ahren is apparently paralyzed by large numbers and is not capable of making this sort of assessment himself. This leads him to mock Krugman for making completely reasonable statements about the economy.
Mr. Ahrens lack of skills apparently prevented him from understanding that the reponse he received from his equity strategist friend, Peter Bookvar, about the state of the economy made no sense whatsoever. Ahrens reported Bookvar's response to an e-mail asking about the economy:
"'Our fragile economy CANNOT handle any tax hikes whatsoever, particularly on capital and the income of those who invest, save and spend the most,' Boockvar wrote, meaning those American families that make more than $250,000 a year. The all-caps are his, but the feeling is shared by many."
It is not clear what Bookvar thinks that wealthy people will do with their tax cut. Saving and spending are direct opposite actions. He might think that saving will help the economy (it is very difficult to see how), but then spending would hurt the economy and vice versa. The only plausible meaning that can be attached to Mr. Bookvar's comment is that he wants wealthy people to have more money and apparently wants the government to run a larger deficit to ensure that they do. The comment concludes that "the feeling is shared by many," which would seem to contradict the Post's frequent assertions that everyone is obsessed by the deficit.
Mr. Ahrens also shared another piece of misinformation in his effort to discredit Krugman's assessment of the economy. In a recent column Krugman had made some comparison's of the current situation to the depression that began in 1873. Ahrens responded by telling readers:
"The fastest that information and capital could move in this sprawling nation in 1873 was about 80 mph -- the top speed of a steam locomotive. When bad times hit back then, they tended to settle in for a good, long time."
This is not true. The telegraph was in use since the 1830s, with the first transcontinental line put in place in 1861.
Anyhow, it is too bad that the Post cannot find someone with the skills necessary to report on the economy.Add a comment
That is not the way the Wall Street Journal reported it, but this in fact what it effectively quoted White House Energy Advisor Carol Browner as saying. The piece is headlined: "Smaller Oil Firms Might Exit Gulf."
The item at issue is the $75 million liability cap that the government currently imposes for spills from offshore drilling. This cap effectively means that taxpayers are paying for the insurance for oil companies that drill offshore. The article reports that the smaller oil companies are complaining that they would not be able to compete if they had to pay for their own insurance.
It would have been helpful if the article had made this point more clear to readers. While there are arguments that the government should pay for items like education for children or fire protection, it is not clear what the argument is that government should pay for insurance for oil companies that cannot compete effectively in a free market.Add a comment
In its article on the June job numbers the Washington Post told readers that:
"the chances of a strong, self-sustaining expansion that can significantly improve the job market -- which seemed a real possibility during the spring -- are now slim"
It is not clear who saw a "strong, self-sustaining expansion that can significantly improve the job market" as a real possibility in the spring. Certainly the Obama administration did not, nor did the Congressional budget office. Both projected very slow growth that would leave the unemployment rate above 9.0 percent by the end of the year. Most private forecasters had similar projections. The Post does not identify anyone who had a more optimistic assessment.
The article then asserts, with absolutely zero evidence, that ambiguity about the economic situation is responsible for the gridlock in Congress over further stimulus:
"The confused outlook is causing paralysis on Capitol Hill, since the recovery is neither strong enough to provoke a turn toward deficit reduction, nor weak enough to lend momentum to President Obama's push for more economic stimulus. As Congress prepared to leave town for the week-long Fourth of July break, even funding for the wars in Iraq and Afghanistan was bogged down by the broader election-year squabble over spending"
This statement implies that if the data showed a weaker economy that the Republicans and Blue Dog Democrats, who are currently blocking stimulus spending, would somehow be more supportive of it. The article includes no statements from any of these members of Congress or anyone connected with them in any way that would support the claim that their votes on stimulus would change if the economy was weaker. The view that their votes on stimulus are responsive to the state of the economy is entirely an invention of the Post.
The article then presents events that were 100 percent predictable as surprises:
"In recent weeks, every pillar of the economic recovery that started a year ago has showed signs of weakening. Manufacturers had been cranking up production -- but now their inventories are largely rebuilt, and they are expanding more slowly. The housing market was recovering as well -- until the end of a federal tax credit for home buyers this spring."
Economists knew that the cycle of inventory rebuilding would come to an end. That happens in every recovery. They also knew that housing demand would fall after the expiration of the tax credit. The tax credit pulled purchases forward meaning that there would be fewer homes bought after it expired than the underlying trend and many fewer than during the period where the credit was in place. No remotely competent analyst could have been surprised by this falloff.
The article goes on to explain the lack of hiring as being due to a lack of confidence on the part of businesses:
"Increasingly, it appears that those months were an aberration and that businesses are too fearful to begin a hiring binge.
'People are still really cautious, and we haven't seen small businesses engage in any substantial way,' said Roy Krause, chief executive of SFN Group, a large employment-services company. 'I don't have any real indicator that would tell you things are going to accelerate faster than they're currently going.'"
A major problem with the fearful business explanation for the lack of hiring is that the average workweek fell in June (as noted in the article). Presumably firms are not cutting hours out of fear, but rather due to a lack of demand. If firms were not hiring because of fear, then we would expect to see hours per worker increase, as firms worked their current workforce harder in order to avoid hiring more workers. Since the opposite is happening, we can assume that the explanation for weak hiring is lack of demand, not fearful employers.Add a comment
It is absolutely astounding that so many reporters at major news outlets apparently have not heard of the housing bubble. This is like people not knowing about the risk of war after the United States had been attacked at Pearl Harbor. Surely such people existed, but you would not have expected them to be writing at the New York Times.
The NYT has a lengthy article today discussing Illinois' severe budget problems in the context of the deficits hitting several large states. At one point, it tells readers:
"Should the largest struggling states — like California, New York or Illinois — lay off tens of thousands more in coming months, or default on payments, the reverberations could badly damage a weakened economy and push housing prices down still further."
House prices in these states have only partially corrected from their budget-inflated levels. They remains substantially above long-term trends. In all three states there are extraordinarily high ratios of price of house prices to rents. It is virtually certain that house prices will fall further regardless of how these states deal with their budget problems. (Interestingly, California is using hundreds of millions of dollars to temporarily prop up its house prices. Presumably, it will end these subsidies once its budget crunch gets too severe.)
At this point, reporters should be familiar with the housing bubble and know something about its general dynamic. Its collapse led to the largest downturn in 70 years. This is a big deal.Add a comment
The huge baby boom cohort is just approaching retirement. Workers in their 50s and 60s have just seen much of the wealth that they were able to accumulate destroyed with the collapse of the housing bubble and the resulting plunge in the stock market. As a result of this loss of wealth the overwhelming majority of baby boomers will be relying on Social Security for the overwhelming majority of their retirement income.
Thankfully the Washington Post has the perfect remedy. It proposes to immediately start to raise the normal retirement age to 67 (from 66) for those just about to retire and to continue raising it until it hits 70 for workers born in 1971. This increase in retirement age would be equivalent to roughly a 5 percent cut in benefits for those just now reaching retirement age and a 15 percent cut in benefits for those retiring in 25 years.
Since Social Security will be the overwhelming source of income for most near retirees a cut in benefits is the same as a tax increase of the same amount. So, the Washington Post is effectively proposing to help homeowners near the age of retirement with the equivalent of an income tax increase of 5-15 percentage points.
It is remarkably that the editorial does not include one word about the loss of wealth from the collapse of the housing bubble. The Washington Post's news and editorial departments were completely unable to recognize the $8 trillion housing bubble prior to its collapse (columnist Steven Pearlstein is a partial exception). Apparently, they still don't know anything about the bubble even after its collapse led to the largest economic downturn in 70 years.
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Morning Edition implied that there is some mystery about the weak job growth in the recovery to date, at one point referring to it as a "jobless recovery." It then tried to blame the health care bill and other issues for the lack of jobs. There is actually no mystery whatsoever behind weak job growth.
The recovery is extremely weak, with GDP growth of just 2.7 percent in the first quarter. Final demand, which excludes the impact of inventory fluctuations, grew by just 1.0 percent. Given the severity of the downturn we should be expecting growth in the 7-8 percent range. With such weak growth, it would be a surprise if the economy was creating jobs at a rapid pace.Add a comment
It apparently takes a long time for news to reach Washington, or at least the Washington Post. That is the only possible conclusion that comes from reading the front page Post article on data showing very weak pending home sales in May that told readers:
"Home sales were expected to decline once the credit ended, but May's acute drops have surprised many analysts. If the trend continues through the rest of the year, it could upend the market's tepid rebound and undermine the broader economy."
Actually analysts who follow housing data were not at all surprised by the sharp drop in pending home sales in May. The Mortgage Bankers Association purchase mortgage applications index had plunged after the expiration of the homebuyers tax credit at the end of April.
It is also reasonable to expect further declines in house prices since the bubble has not fully deflated. House prices are still about 15 percent above their long-term trend levels.
The Post had a policy before the bubble bursts of talking exclusively to economists who were unable to see the $8 trillion housing bubble or unwilling to talk about it. It appears to still have this policy.
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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.Add a comment
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."Add a comment
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.Add a comment
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.Add a comment
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.Add a comment
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.Add a comment
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.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.Add a comment
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.Add a comment
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.Add a comment