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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That would be Ben Bernanke, who by his own claim brought us to the edge of a second Great Depression. The Post told readers that Bernanke:

"has aimed to use the weight of his words to try to give more momentum to efforts to reduce the budget deficit in the medium to long term."

It would have been reasonable to note the irony that a person who failed so miserably at his job -- causing tens of millions to be unemployed or underemployed, and also causing deficits to soar -- would lecture Congress and the public about deficits.

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That's what readers of Andrew Ross Sorkin's column on AIG are all asking, but arithmetic and Mr. Sorkin are rarely found in the same room. Of course the real story of AIG and the other bailouts is that the government used its credit to keep the company, and more importantly its creditors and top executives in business.

Sorkin apparently assumes his readers do not understand that below market loans and guarantees have enormous value. Of course if the government had made the same commitments to the owner of a corner hot-dog stand as it did to AIG, this person would be as rich as Bill Gates right now. Mr. Sorkin could then write a column about how the loans and guarantees didn't cost the government anything (since the hot-dog stand owner had repaid them), but NYT readers know better.

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According to the New York Times, Scott Walker, the Republican candidate for governor is worried that they can't. Of course, the NYT did not make the issue quite this clear to readers.

It told readers that Mr. Walker is worried that subsidies to high speed rail could cost Wisconsin $7-$10 million a year. It would be necessary to divide by Wisconsin's population of 5.6 million to realize that an expenditure of 2.8-4.0 cents a week is a high item on the Republican gubernatorial candidate's list of concerns.

(Thanks C. Mike for catching my initial error.)

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The NYT discussed the issues involved in currency pricing and trade protection with reference to China and other countries. The article raised concerns that growing protectionism could hurt economic growth, but it never noted that most highly educated professionals already benefit from extensive protectionism. The inequality resulting from their protection is one of the key factors motivating protectionist sentiments in the United States.

It also raises the prospect that a higher valued yuan would seriously damage China's economy. It would have been helpful to note the importance of China's exports to the U.S. to its economy. China's good exports to the U.S. are approximately equal to 6 percent of its GDP. Even a sharp rise in the yuan is unlikely to reduce its exports by more than one-third (2 percent of GDP) over a 2-year period. This is currently equal to less than 3 months of growth in China.

It is also worth noting that China's exports to the United States fell by 17.4 percent from the third quarter of 2008 to the third quarter of 2009. China was able to offset the loss of export demand from the United States and elsewhere with a massive stimulus package. As a result, its economy grew by more than 9.0 percent in 2009.

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Since some folks are determined to spread nonsense about the TARP, I suppose it's necessary for those of us not on Wall Street's payroll to keep trotting out the truth. The basic points of the TARP backers are:

1) it didn't cost us anything;

2) it was necessary; and

3) Dodd-Frank ensures that it will never happen again.

 

Claim 1 is just absolute nonsense. We gave the banks trillions of dollars worth of loans and loan guarantees through the TARP, the Fed and the FDIC at way below market rates at the time. It is true that most of this money was paid back, so the government got back what it lent, but that does not mean there was no cost to the taxpayer.

Without TARP and the other government bailout programs, Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, and many other large banks would have gone bankrupt. Their top executives would be unemployed today and their shareholders would have lost hundreds of billions of dollars in wealth, as would their creditors.

Thanks to their access to below market credit in their time of need, courtesy of the taxpayer bailouts, the Wall Street executives are still pocketing tens of millions a year and the banks are again making record profits. Had the market been allowed to work its magic, this wealth and income would have been available for the rest of society. The financial sector will continue to be a drain on the rest of the economy because the government saved it from the consequences of its own recklessness.

 

Claim 2 implies that the economy would have collapsed absent the TARP. It assumes an absurd counter-factual: that the government and the Fed would have allowed the banks to collapse and then done nothing in response to boost the economy. Of course that would have been a catastrophe, but it is simply a lie to claim that our options were either doing TARP or never doing anything.

There is no reason that we could not have let the banks go down in the cesspool of junk loans that they had fostered and then flooded the system with liquidity after the fact to boost the economy. This is the serious alternative scenario -- not the permanent do nothing scenario that TARP proponents have created.

 

Claim 3 ignores the fact that we have bigger too-big-to-fail banks than we did before the crisis. Most of the largest banks are larger today than they were before the crisis because we allowed a series of major mergers (e.g. J.P. Morgan Chase with Bear Stearns and Bank of America with Merrill Lynch) as a result of the crisis. It is very unlikely that the future regulators will be any more willing to tolerate the collapse of these giants than was the 2008 crew.

Resolution authority may give the regulators more flexibility in a crisis in the future than they had in the 2008 crisis, but the big problem was that they wanted the creditors paid off, not that they didn't. For example, the Treasury Department/Fed made good on 100 percent of AIG's debts, instead of trying to impose haircuts on its creditors. There is no reason to expect regulators to act any differently in future crises.

In short, the TARP opponents are absolutely right. TARP was an unnecessary giveaway to the Wall Street crew that was responsible for the financial crisis.

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The Post had a good article on how TANF, the main federal welfare program, has not expanded significantly in the wake of the downturn, even as the need has increased enormously. At one point the article tells readers that:

"Despite urging from the Obama administration and welfare directors around the country, lawmakers decided not to extend the emergency welfare money, which gave states more than $4 million, in part to subsidize wages to help people go to work."

Actually, the law would have provided more than $4 billion, not $4 million. However, it would have been helpful to express these sums relative to the size of the federal budget so that readers would know how large they are. The $4 million figure would be equal to 0.00011 percent of federal spending. The $4 billion number is equal to 0.11 percent of federal spending.

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That was what he told Post readers in his column. He talked about President Obama's deficit commission as "the last hope for gaining control of government spending," telling readers that:

"The problem is so big as to seem insurmountable: $13 trillion of debt, now equivalent to 60 percent of gross domestic product. In 10 years, that is projected to increase to 90 percent of GDP, at which time we'll be making $1 trillion a year in interest payments." 

People with more familiarity with numbers would note that the country has had larger debt to GDP ratios in times past. They would also point out that that the $1 trillion in interest payments is less than 5 percent of projected GDP in ten years. The government faced the same interest burden in the early 90s.

Furthermore, unless the Fed acts irresponsibly (a big if, it did allow the $8 trillion housing bubble that wrecked the economy), it will own much of the government's debt. In this case, the interest will be paid to the Fed, which in turns will rebate it to the Treasury leaving no net interest burden. Currently the Fed is rebating an amount equal to almost 40 percent of the interest paid by the Treasury. Reporters at most newspapers would be expected to understand this relationship.

It is also not clear what Milbank thinks is out of control about government spending (maybe he sees flying saucers also). Government spending has mostly increased to support the economy in response to the worst downturn since the Great Depression. His column suggests that he may be unaware of this downturn.

 

 

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It is really simple to use purchasing power parity measures of GDP. This makes it hard to understand why the NYT and other papers use exchange rate measures. The exchange rate measures are essentially meaningless, whereas the purchasing power parity provide some basis for assessing living standards.

The NYT told readers that per capita income in Malaysia is about $7,000. According to the CIA Factbook Malaysia's per capita income is $14,900.

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The Washington Post headlined an article on the release of data August consumer spending: "with consumers skittish, hopes muted for holiday sales." The article goes on to describe weak consumer sales, which are explained by pessimistic attitudes about the economy.

In fact, consumer sales are actually quite strong given the level of income. As the article notes, the saving rate for August was 5.8 percent. This is considerably below the average for the 50s, 60s, 70s, and 80s. In each of these decades the savings rate was considerably above 8.0 percent.

The saving rate began to drop toward the end of the 80s and into the 90s as a result of the wealth effect generated by the stock market bubble. It fell to zero as a result of the wealth effect from the housing bubble. Now that most of this bubble wealth has disappeared, it would be expected that the savings rate would return to its normal level or possibly even rise above it, as households attempt to make up for lost wealth. This is especially likely given that the huge cohort of baby boomers is approaching retirement with virtually no wealth and there is widespread talk of cutting their Social Security benefits.

It is remarkable that the Washington Post could not find any economists familiar with the wealth effect on consumption. It is one of the most basic relationships in economics.

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The Washington Post is a huge fan of protectionism. That is what readers can conclude from the fact that it conceals the protectionist aspects of trade deals like the trade agreement between the United States and South Korea. Provisions increasing protection for U.S. patents and copyrights are an important part of this trade agreement. However, the Post has devoted almost no space to mentioning these provisions, which will raise costs for Korean consumers and slow growth there.

Instead, the Post constantly mischaracterizes the deal as a "free-trade" agreement (as opposed to a "trade agreement") thereby wasting space and spreading inaccurate information.

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This is striking, since most of the country falls into the critics category. Apparently, the NYT doesn't know any TARP critics.

If they did, and they talked to them for their article on the end of the TARP, the critics likely would have told the NYT that the TARP preserved Wall Street as we know it. Had the market been allowed to do its magic, Citigroup, Goldman Sachs, Morgan Stanley, Bank of America, and many other fine institutions would have been bankrupt. This would have redistributed more than a trillion dollars of wealth from the shareowners, the creditors, and the top executives to the rest of the country.

By providing them with loans at below market interest rates, the TARP and the much larger Fed and FDIC bailouts, allowed the banks to survive the crisis created by their own recklessness. This was like giving away food during a famine. The banks have repaid the food with interest now that the harvest has come in, but to pretend that we did not do them an enormous favor at enormous cost to taxpayers (we could have rescued others with these loans) is absurd.

The claim that we averted a second Great Depression with the TARP is a great children's story, but no one has any clue how the decision to not do the TARP would have necessitated a second Great Depression. The first Great Depression was the result of a decade of bad policy, not just an initial policy failure at its onset.

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It might be the case that you don't need a weatherman to know which way the wind blows, but the NYT is telling us that we need a philosopher to guide our tax policy. An article on the debate over extending the Bush tax cuts told readers:

"As the political battle drags on, however, it has also veered into a more basic matter of fairness, whether a person who earns more than $200,000 a year should be taxed at rates similar to those who make $5 million."

Umm, really? Is the rate at which people are taxed, as opposed to the amount they pay in taxes, really such an important political issue? Do most people even know the rate at which they are taxed? Following the 1986 tax reform, tens of millions of middle income workers paid the same 28 percent tax rate as the very richest people in the country. There was not a big philosophical debate over this issue at that time. (We were lowering rates for the wealthy back then, not raising them.)

The more obvious issue is how much tax people will be paying. The answer for the questionably rich people who are the focus of this article (people with incomes between $250,000 and $500,000) is not very much. The Joint Tax Committee in Congress calculated that the average tax hit for taxpayers with income in this range would be $400 a year. That sort of tax hit would not seem to require very much philosophy.

 

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USA Today has an interesting article about how Grand Rapids, Michigan has gotten a boost to its economy from a modest arts prize awarded each year by a private donor. This raises the issue of whether some communities may use similar methods to more systematically provide economic development. A local government could adopt something like an artistic freedom voucher system to encourage creative workers (e.g. musicians, writers, artists, etc) to live in their city. Since these people would want to get support from the local population through the voucher system, they would have a strong incentive to perform frequently. This could turn a city into an arts mecca. Add a comment
Princeton University Professor Uwe Reinhardt does not believe that it is possible to keep per person health care costs from rising from twice the average in the countries with longer life expectancies than the United States to more than four times the average in countries with longer life expectancies. Of course there are obvious ways to get costs done, such as the $270 billion a year that could be saved by eliminating government patent monopolies for prescription drugs and adopting a more efficient mechanism for financing drug research.

But the easiest mechanism to eliminate these enormous price differentials would be to simply open the market to international trade and allow people in the United States to take advantage of the more efficient health care systems in other countries. Too bad the NYT's economists don't believe in free trade.
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That's right NYT columnist Ross Douthat told readers today that: "And as everybody knows, the only way to really bring the budget into balance is to reform (i.e., cut) Medicare and Social Security."

Of course everybody who knows anything about the budget knows full well that this is not true. The budget problem is almost entirely a story of a broken health care system. If the United States had the same per person health care costs as any of the countries which enjoy longer life expectancies than the United States, then it would be facing long-term budget surpluses, not deficits. 

Everybody also knows that Social Security does not contribute to the deficit. It is financed by a separate designated tax. The most recent projections from the Congressional Budget Office show that this tax will be sufficient to fully fund benefits through the year 2039 with no changes whatsoever. 

Given the health of the program, it is not clear why anyone would want to cut Social Security except to take money from ordinary workers -- a major sport in Washington. It would make more sense to default on the national debt.

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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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