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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The NYT reports on a new set of papers from the IMF, one of which warns that many wealthy countries, including the United States, are very close to the limit of their ability to increase their national debt. It is worth noting that this paper's methodology indicated that Japan and Italy were already well above the limit of their ability to take on debt.

The financial markets apparently assess the situation differently than the IMF since both countries are still able to issue long-term debt at very low interest rates. The fact that the methodology is apparently quite wrong in predicting the situations faced by these two countries might suggest that it is not a very useful methodology for guiding U.S. policy.

It is also worth noting that IMF somehow did not see the $8 trillion housing bubble that wrecked the U.S. economy, nor the bubbles in Spain, Ireland, and the U.K. There have been no obvious changes in the IMF's structure that would lead one to believe that it is better at assessing economic prospects today than it was three years ago.

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Fool or Liar? That is the question that should be posed of anyone who says that companies are not hiring because of concerns about taxes or regulations.

Exhibit A, the only one necessary to prove the case, is that there has been no unusual increase in average weekly hours. There is some uptick from the low-point of the downturn, but nothing unusual for an upturn, and we are still far below average weekly hours from before the recession.

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The first sentence of a Washington Post article on the decision by the SEC not to pursue legal action against the company told readers that the rating agency "misjudged" many securities that subsequently plunged in value. This assertion is exactly what is in dispute.

The rating agency clearly mis-rated many securities, giving investment grade ratings to issues that were clearly junk, at least in retrospect. The question is whether the erroneous ratings were honest mistakes -- misjudgements -- or whether they were due to fact that Moody's knew that issuers wanted investment grade ratings and would not hire them in the future if they could not be relied upon to produce such ratings. The Post has somewhere determined that Moody's just made honest mistakes and told readers so in the very first sentence.

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This would no doubt be how the Washington Post's economic reporters would have covered the World Cup final. They would not have bothered to tell readers that Spain in fact did win the World Cup, regardless of what the Netherlands' fans claim.

This comes up in the context of the impact of the stimulus where the Post treats us to a he said/ she said. The Post has a quote from an economist at the Center on Budget and Policy Priorities who says the stimulus was a good idea and helped the economy. It also features a quote from an economist at the CATO Institute who says that it didn't help the economy and just added to the debt.

Maybe we could check with the ref. The Congressional Budget Office says it increased GDP by between 1.7 percent and 4.5 percent. They also calculate that it reduced the unemployment rate by between 0.7 and 1.8 percentage points. Private forecasters, such as McCain economic adviser mark Zandi, come up with similar estimates. This would have been useful information to include in this article.

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This time it is in UK. It begins an otherwise good article about how proposed budget cuts will disproportionately hit women with the line: "as Britain prepares for the deepest budget cuts in generations to tackle a crippling mound of public debt."

How has it been determined that Britain faces a "crippling mound" of public debt? Certainly the markets have not made this determination since they are still willing to lend money to the UK at very low interest rates. This is simply the view of the writer and or editor, not a fact in the world.

A real newspaper would write: "as Britain prepares for the deepest budget cuts in generations to reduce its public debt." This increases accuracy and saves words.

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Mr. Sorkin noted Wall Street's shift of funding to Republicans and told readers that:

"Mr. Loeb’s views, irrespective of their validity, point to a bigger problem for the economy: If business leaders have a such a distrust of government, they won’t invest in the country. And perception is becoming reality."

Is that so? Well, business leaders were never more angry at the government than during Franklin Roosevelt's New Deal. And, let's see what they did in those years. Here are the growth rates for non-residential fixed investment in the first four years of the New Deal.

1934   27.4%

1935   26.7%

1936   35.2%

1937   19.8%

It looks like the business leaders were able to put their anger aside and invest where it was profitable. Of course business leaders always stand to gain if they convince the public of the argument that Mr. Sorkin is making -- if the government doesn't give them everything they want then they won't invest. However, the evidence does not seem to support Mr. Sorkin's assertion.

 

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The Washington Post told readers that the Korean trade pact would raise the price of hogs by $10 each, roughly a 20 percent increase. The context was a claim that the pact would be very important to Indiana farmers. If this is true, then it implies that the Korean trade pact will put serious upward pressure on food prices in the United States.

It is extremely unlikely that more open agricultural trade with a relatively small market could have such a dramatic impact on farm prices. More likely, it is one of the nonsense stories that proponents of trade pacts routinely circulate with the expectation that news outlets like the Washington Post will repeat them unquestioningly. Of course a serious newspaper would point out the implications of such a claim, if it were true.

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Robert Samuelson seems to think that the problem with the recovery is that people are still saving. While this is in part right, Normal 0 he is wrong to suggest that anyone should be surprised by the current level of saving.

The current saving rate is approximately 6 percent of disposable income. While Samuelson implies this is high, it is actually very low by historic standards. The saving rate averaged more than 8 percent through most of the post-war era until the wealth effect of the stock and housing bubbles drove it toward zero in the last 15 years.

Samuelson seems to think that after a couple of years of a 6 percent saving rate, saving will again fall to its bubble levels of near zero. There is no reason to expect this. As the housing bubble deflates further, households will see a further decline in wealth. They will likely increase their saving rate to the 8 percent pre-bubble range.

In fact, demographics suggest that the saving rate could rise even higher. The huge baby boom cohort is at the edge of retirement, with most having almost nothing other than their Social Security to depend upon. This provides a strong incentive to save, especially in an environment where much of the political leadership is pushing for cuts to Social Security.

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This fact would be worth mentioning in an article that discusses Federal Reserve Board Chairman Ben Bernanke's attitude toward the deficit. If Greenspan and Bernanke (who was a Fed governor from 2002) had paid attention to the $8 trillion housing bubble, and prevented it from growing to the point where it could do so much damage, then the country would not be in a serious downturn today, and we would not be running a large budget deficit.

It is only due to the incompetence of the people running the Fed that we are facing such severe economic problems. In other lines of work, like dishwashers and custodians, people would be fired for such incompetence, but those running the Fed are not held accountable in the same way as most workers.

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Why is it so hard for reporters to understand the idea of purchasing power parity? This is important if anyone is interested in understanding China's importance in the world economy. China produces and consumes more output in a wide variety of goods and services. This would not make sense for an economy that is just passing the size of Japan, putting China's economy at a bit more than one-third the size of the U.S. economy.

The more realistic measure is the purchasing power parity measure that puts China's economy at almost two-thirds of the size of the U.S. economy. This measure applies a common set of prices to all goods and services, regardless of which country they are produced in. This measure of China's GDP is far more consistent with a country that both buys and produces more cars than the United States, has more Internet users and twice as many cell phones users.

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The NYT told readers that the Fed's ability to take steps to boost the economy are limited because:

"The dramatic expansion of the national debt — which began in the Bush administration, via hefty tax cuts and two wars — has ratcheted up fears that, one day, creditors like China and Japan might demand sharply higher interest rates to finance American spending."

It may be true that such "fears" may prevent the steps to raise employment in the same way that children fear monsters in the dark, and therefore feel the need to keep the light on when they sleep, but reporters should also point out that such fears have no basis in reality. If China and Japan "demand sharply higher interest rates," then it would mean that the dollar would fall sharply against their currencies.

This is exactly the policy that the Obama administration is ostensibly committed to. The lower value of the dollar would lead to a sharp boost to U.S. exports and a fall in imports, lifting growth and employment. It is difficult to understand why anyone would fear the outcome that we are ostensibly committed to seeing. In short, the "fears" have no basis in reality and are promoted either out of ignorance or by people who have ulterior motives.

At one point the article tells readers that Germany has done relatively well in this downturn without using stimulus:

"Germany, which has long harbored particularly powerful fears of inflation, has done relatively well in the current downturn without large stimulus spending, and that experience is now cited by adherents of austerity."

Dishonest adherents of austerity do cite this experience, but it is easy to show that the Germany history does not support their case. According to the OECD, government consumption expenditures increased more in Germany since the downturn than in the United States.

germany-U.S._23832_image001

 

It is worth noting that Germany should have an easier time recovering from this downturn since its economy was not driven by a housing bubble. The main impact on Germany's economy has been through a decline in exports.

It would have been useful if this article had included the views of some economists who were able to see the $8 trillion housing, the collapse of which led to the downturn.

 

 

 

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The economists and central bankers attending the annual meeting of central bankers in Jackson Hole, Wyoming apparently have not noticed the collapse of the housing bubble and the wreckage it has caused. This is the only plausible explanation for a WSJ article that told readers about a paper on a new approach to fiscal policy that argues:

"fiscal policy could benefit from the more scientific approach taken by monetary policy over the past two decades."

The article continues:

"The former U.S. Federal Reserve economist [the person presenting the paper] noted how monetary policy has improved after central banks started to adopt goals such as inflation targeting and as central bankers started to articulate the 'science' in public speeches."

People who pay attention to the economy know that the monetary policy pursued over the last three decades has devastated the economy, leaving tens of millions of workers in the United States unemployed or underemployed. It would be hard to imagine a policy that could produce more disastrous results than the single-minded focus on inflation that central banks followed even as housing bubbles in the U.S. and elsewhere grew to ever more dangerous levels.

If the central bankers and economists at Jackson Hole still don't understand how harmful these policies have been then it should raise enormous concern in Congress and among the general public about the competence of the people controlling economic policy. This should have been the main focus of a news article on the meetings.

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The Washington Post's lead editorial told readers that there is not much the Fed or anyone else can do to get us out of an economic situation with near double-digit unemployment. It concludes its piece with a vague set of policy recommendations that include "education, tax reform and entitlement reform."

This is pretty much the same agenda that the Post was pushing back in 2002-2007 when others were warning about the dangers of the housing bubble. The Post had no room on its news or opinion pages for these warnings. It seems that it still doesn't. Its policy prescriptions are remarkably impervious to evidence or changed circumstances.

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In his speech at the annual meeting of central bankers in Jackson Hole, Wyoming, Federal Reserve Board Chairman Ben Bernanke listed his options to counter a faltering economy. One of the three items on the list was reducing the 0.25 percent interest rate that the Federal Reserve Board now pays on reserves.

It is striking that Bernanke would include this item on his list because he just instituted the policy of paying interest on reserves last year. At the time there was no discussion of the possibility that paying interest on reserves would have any significant negative impact on growth. If paying interest does not slow growth, then reducing the interest rate paid on reserves cannot raise growth.

Reporters covering Mr. Bernanke's speech should have made this point, since it suggests that he does not have any real plans to deal with a weak economy. It would have also been worth pointing out that the economy is growing much slower than the 3.0 to 3.5 percent range that the Fed had forecast earlier in the year. The second quarter data showed the economy growing just 1.6 percent, with final demand growing at a 1.0 percent rate. If Bernanke is prepared to take action in response to a weak economy, this would appear to be the time, as the unemployment rate is likely to rise through the rest of the year.

It is worth noting that at this gathering 5 years ago the participants debated whether Alan Greenspan was the greatest central banker of all time.

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That's what NYT columnist Joe Nocera is apparently worried about. That doesn't quite fit the data. The Census Department data show that rental vacancy rates are at record highs.

The article also claims that many otherwise creditworthy borrowers are unable to get mortgages. This is inconsistent with the Mortgage Bankers Association data on mortgage applications. This series shows applications going through the floor since the end of the first-time buyers tax credit in May. (That is why people who follow the housing market were not surprised by the plunge in sales reported for July.)

If creditworthy borrowers were finding it difficult to get mortgages then it would be expected that the number of applications would be rising sharply relative to the number of sales, since many buyers would have to make multiple applications to get a mortgage and some would make several applications and still not get a mortgage.

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The Washington Post accomplished what might have seemed impossible: it had a major front page article on the trade deficit without once mentioning the over-valued dollar. The only vague reference comes near the end in a sentence that refers to "China's currency and other policies."

Those folks who took economics would remember that the main determinants of a country's trade deficit are its GDP and the value of its currency. Other things equal, when a country's economy expands, it buys more of everything, including more imports. This means that GDP could be a culprit in the trade deficit, but there would be few people who would claim that our GDP was too high in the years 2005 and 2006 as the trade deficit was hitting record shares of GDP.

This leaves the other culprit, an over-valued currency. The value of the dollar determines how expensive imports are relative to U.S. goods. If the dollar fell in value, we would buy fewer imports. This is a point which is widely accepted outside of the confines of the Washington Post. Of course, a lower dollar will also boost U.S. exports since it will make our exports cheaper to people living in other countries. For these reasons, a discussion of currency values would be featured front and center in a serious discussion of the trade deficit.

 

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Suppose Paul Krugman or Bob Herbert got just about everything wrong in their columns on a regular basis. Suppose that they were not just wrong on peripheral matters, but on facts that were central to their argument. What would happen?

These progressive columnists would almost certainly be sent packing. There are plenty of smart articulate progressive writers. If these two couldn't get their facts right, the NYT would have no problem finding someone to replace them who could.

Apparently, the same does not apply to conservative columnists as demonstrated by David Brooks. He gets his facts wrong on a regular basis and not just on side matters. Often the mistake is on an issue that is the central point of his column.

He gave us a beautiful example today. He told readers that the United States had decided to go the big government route to recover from the downturn whereas Germany had gone the austerity route. Brooks tells readers:

"This divergence created a natural experiment. Who was right? The early returns suggest the Germans were."

He then points to Germany's 9.0 percent growth in the second quarter compared to the near stagnation in the U.S. economy.

Brooks is good enough to note that, "results from one quarter do not settle the stimulus/austerity debate," but let's ask if they show anything.

The chart below shows the OECD's estimates of real government expenditures for Germany and the United States since the third quarter of 2008.

germany-U.S._23832_image001

Yes, that's right. David Brook's austerity model has seen a sharper increase in government spending since the crisis than his stimulus model. This suggests that the Germany/U.S. comparison might be somewhat less compelling then he implies.

How long would Krugman or Herbert be working at NYT if they made mistakes like this on a regular basis?

 

 

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In an article reporting on the plunge in new home sales reported for July, the NYT wrongly told readers that "July was the first month that home buyers could no longer qualify for a tax credit of as much as $8,000, which analysts said may have contributed to the decline." The end of the tax credit was a major factor in the plunge in existing home sales reported on Tuesday, but not the drop in new home sales.

The existing homes series refers to the closings on existing home sales. These sales were typically contracted 6-8 weeks earlier. While the homes that were closed in June likely qualified for the homebuyers tax credit, this would not be true of the existing homes that closed in July.

However the new home sales refer to contracts signed for selling new homes. May, not July, was the first month in which contracts would not qualify for the tax credit.

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Good piece in the NYT about enforcing the Volcker Rule, which limits the extent to which banks can trade on their own account. Add a comment

The copy editors at the NYT are apparently on vacation. The NYT told readers that: "the nonpartisan Congressional Budget Office (CBO) reported that the policies had lifted growth in the second quarter by up to 4.5 percent."

No, that's not quite right. CBO reported that the cumulative gain to GDP due to the stimulus by the second quarter of 2010 might have been as much as 4.5 percent. This does not refer to the growth rate in the second quarter itself.

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The NYT has apparently decided to give up on the old-fashioned distinction between news and opinion. They recently ran a piece by Matt Bai insisting that there is no alternative to cutting Social Security to deal with the federal debt. The piece includes the bizarre assertion that Treasury bonds are "often referred to as i.o.u.’s."

This is, of course, absurd. The business pages of major newspapers are full of references to Treasury bonds all the time. The bonds are never referred to as "i.o.u.'s." The article then includes the bizarre assertion about government bonds that the only way for the government to make good on the bonds it has outstanding: "is to issue mountains of new debt or to take the money from elsewhere in the federal budget, or perhaps impose significant tax increases — none of which seem like especially practical options for the long term."

Bai's opinion is radically at odds with perceptions in financial markets. These markets view it as almost inconceivable that the government will not honor its bonds, which is why the interest rate on long-term bonds is near its lowest level in the last 60 years.

While presenting what is supposed to be a non-partisan view of Social Security, remarkably, Bai never once examines the program's finances nor the financial situation of the people who would experience the cuts that are being considered.  

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