Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press.

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In a piece discussing patterns in world growth over the last three decades Eduardo Porter told NYT readers:

"What’s happened is that while income growth stalled for middle-class workers in developed countries and surged for people in the 1 percent, it also grew sharply for hundreds of millions of workers in China, India and other Asian countries. In the late 1980s, for instance, workers in the middle of China’s urban income distribution made 56 percent of the median American income, according to Mr. Milanovic’s calculations. By 2008, that figure rose to 71 percent."

It is unlikely that people in the middle of the income distribution in urban areas of China had an income that was 71 percent of median in the United States in 2008. According to the Penn World Tables, per capita income on a purchasing power parity basis (the appropriate measure for comparisons of living standards), per capita income in the United States in 2011 was over $42,000. It was just under $8,000 in China. Overall, income is somewhat more unequally distributed in China than in the U.S., but urban areas have far higher living standards than rural areas. However even if we say this doubles the income of middle income urban Chinese, this would still only get them to 40 percent of the average in the United States.

While China's workers have enjoyed enormous gains in living standards over the last three decades, their standard of living is still well below the median in the United States. These gains have continued since 2008, with per capita income in China rising by nearly 60 percent in the last six years according to the I.M.F.

It is also worth noting that these gains need not come at the expense of workers in the United States and other wealthy countries. In principle, if U.S. workers had seen larger gains in income they could have been an even bigger source of demand for China's exports. In this context, the budget reducing policies of Washington politicians are lowering incomes in both China and the United States.

Also, policies that would promote equality in the United States could also yield large benefits for China. For example, weaker patent and copyright rules would make drugs and other products cheaper for people in China, giving their workers more purchasing power, while also reducing the patent rents received by the wealthy in the United States.

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In his new and improved FiveThirtyEight Nate Silver examines the sources of increases in government spending over recent decades and identifies Social Security, Medicare, and Medicaid as the culprits. He then notes that these are effectively insurance programs. He then concludes that this explains the decline in trust for government:

"Nevertheless, the declining level of trust in government since the 1970s is a fairly close mirror for the growth in spending on social insurance as a share of the gross domestic product and of overall government expenditures. We may have gone from conceiving of government as an entity that builds roads, dams and airports, provides shared services like schooling, policing and national parks, and wages wars, into the world’s largest insurance broker.

"Most of us don’t much care for our insurance broker."

There is a big problem with this story. Social Security, Medicare, and Medicaid are all hugely popular programs across the political spectrum. If the public thought this was all the government did with their money, the government would likely be very popular. In fact, many people often discount these programs from the government as in the famous line from older Tea Party supporters that the government should keep its hands off their Medicare.

In fact, the public hugely misperceives where government tax dollars are spent, as polls consistently show. For example a 2010 poll found, the public on average believes that 27 percent of the budget goes to foreign aid. The actual number is less than 1.0 percent. A CNN poll from the same year found that the median respondent thought that food stamps accounted for 10 percent of the budget, while subsidies to the Corporation for Public Broadcasting accounted for 5 percent of the budget. (The actual number is less than 0.01 percent.)

Since the public huge exaggerates the portion of the budget that goes to many non-insurance programs, it is likely that its view of the government is more a result of its attitude toward these programs. The latter is in turn probably more negative than would otherwise be the case because of the exaggerated view of the amount of money these programs receive.

Anyhow, the piece does a good job explaining what is and what is not growing in the budget, but since most people are clueless on these facts (largely to due to the pathetic quality of budget reporting), the piece strikes out badly in its explanation of public opinion.

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The headline of the piece was "manufacturing gains likely to spur Fed's stimulus cuts." The actual news was that manufacturing output was reported as rising 0.8 percent in February, reversing most of a 0.9 percent decline in January. It's a bit hard to see this as solid growth. If we add in December, manufacturing has grown at a 0.4 percent annual rate over the last three months.

Manufacturing output is just 1.5 percent above its year ago level. This has led to a drop in the capacity utilization rate of 0.1 percentage point to 76.4 percent. It is pretty hard to see this as an argument for cutting back stimulus.

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The Washington Post told readers that the Republicans are putting together an alternative to the Affordable Care Act (ACA). Unfortunately it substituted Republican talking points for an actual description of the plan.

At one point the article told readers:

"They would prefer to see a shift away from the federal government and to the states, with an emphasis on getting more consumers on private plans."

In fact the Republican plan explicitly takes away authority from the states. It would have the federal government require states to accept insurance plans offered by other states. This is 180 degrees at odds with what the Post told readers.

This would be comparable to requiring the United States to allow insurance plans from insurers regulated in the Cayman Islands, Panama, or some other tax/regulatory havens. That would take away control from the United States government. This should have been pretty obvious to the Post reporters.

The other part of this claim is also bizarre. The ACA requires that people buy health care insurance from private insurers. What could it possibly mean to say that the Republicans have:

"an emphasis on getting more consumers on private plans."

This is presumably a line that was focus group tested for appeal, since the Republicans have routinely referred to the ACA as a government takeover of the health care system. However it has no basis in reality and no place in a news article, except as a quote. Even in that case a responsible newspaper would point out to readers that the assertion is not true.

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That wouldn't be such a big problem if he didn't write on economic issues. This time the problem affects his discussion of past and future efforts at boosting the economy.

Samuelson seems to think that investment and consumption are depressed because of businesses and consumers fears about the economy. If he had access to the economic data, he would know that non-residential investment is almost back to its pre-recession share of GDP (12.3 percent in the most recent quarter compared to an average of 12.8 percent in the years 2005-2007). Given the large amount of excess capacity in most manufacturing sectors, this doesn't suggest much business pessimism. The consumption share of GDP is at near record highs, exceeded only by the 2011 and 2012 shares, which were boosted by the payroll tax cut.

So neither business investment nor consumption show any evidence of weakness due to pessimism. The obvious basis for continuing weakness is that housing construction is still depressed due to the overbuilding of the bubble years and continued high vacancy rates. Also consumption is lower relative to disposable income than it was during the bubble years because households have lost close to $8 trillion in bubble generated housing equity. Ultimately the problem is that the economy needs some extraordinary source of demand (e.g. large budget deficits or asset bubbles) to replace the $500 billion in annual demand lost to the trade deficit.

The piece also cites John Taylor's work to claim that the tax cuts that were part of the stimulus had no effect on consumption. Research by David Rosnick and me shows that Taylor's results on this issue are not robust. Minor changes in specification lead to the conclusion that the tax cuts had a substantial impact on consumption and growth.

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Last week we were being warned that the labor market was too tight and an outbreak of inflation was imminent. Today, Edward Lazear, formerly chief economist in the Bush administration, is telling us that labor demand is plummeting as shown by a reduction in the length of the average workweek. Okay so the labor market is too tight and too weak, that looks really bad. Given that economists also tell us that robots will take all our jobs and that a growing population of retirees will leave us with a shortage of workers it is remarkable that the public doesn't insist on hanging us all.

But Lazear does raise an interesting point that deserves to be considered. The Labor Department's establishment survey shows a notable decline in the length of the average workweek from 34.5 hours in November (he picks September as his starting point) to 34.2 hours in February. In work time, this is equivalent to a loss of more than 1 million jobs. As a result of this drop in hours, the index of total hours worked actually shows a decline of 0.1 percent since September and 0.6 percent since November. What do we make of this?

There are two questions that come up. First how reliable are these data and second, are they consistent with other data?

On the first point, there are grounds for skepticism. As Lazear notes in the piece, weather could have been a factor in shortening workweeks in February. Much of the Northeast-Midwest was hit by unusually bad weather that may have led people to miss a day or two of work. If we look back over the last three decades, there are other instances of comparable declines in the length of the average workweek that don't seem to correspond to downturns in the economy.

For example, we saw the same drop from 34.5 hours in December of 1994 to 34.2 hours in May of 1995, a period when the recovery was moving along at a healthy pace. (These data refer to the hours of production and non-supervisory workers, since the all workers index does not go back before 2006.) The average workweek declined from 34.7 hours to 34.4 hours between January of 1989 and May of 1989, again a period where the economy was still growing at a healthy rate. And it fell from 34.8 hours in November of 1987 to 34.5 hours in March of 1988. There was an even sharper drop from 35.0 hours in January of 1986 to 34.6 hours in July of 1986. In short, we have seen these sorts of drops before even as the economy was growing and adding jobs at a healthy pace. 

The other question is whether the data are consistent with what we see in other series. Here the answer is clearly no. The separate survey of households shows that the number of people employed part-time (defined as less than 35 hours a week) has actually fallen by more than 0.3 percent since September. This survey is much less reliable than the establishment data. Also, it is possible that workers may working fewer hours but not crossing the 35 hour threshold to be classified as part-time. (We could also directly analyze the micro data, but that's more effort than I am prepared to put into this question just now.) Anyhow, the published data from the household survey clearly gives no support to the declining hours story.

So, what should we make of this drop in hours? For the moment, the answer should be not much. Let's see what happens in the next two months. There is a story that Obamacare will lead to a reduction in the length of the average workweek, as many people will no longer need to work a full-time job to get health care insurance. That is one of the good things about the Affordable Care Act in my book. However, a reduction in hours for this reason should be largely offset by an increase in the number of jobs. If that proves to be the case, that will be good news.


Note: Typos fixed, thanks Robert Salzberg.

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Gretchen Morgenson had a column on a new report from the Inspector General of the Justice Department which found that prosecuting mortgage fraud was a low priority, contrary to claims by the Obama administration. Since there is so much confusion on the topic it is worth repeating again what the Justice Department would have done if law enforcement had been its concern.

It's not a question of simply locking up Jamie Dimon and Lloyd Blankfein and other top bankers, the point would be to build a case from the bottom up. This means going to mortgage agents at Countrywide, Ameriquest, and other major subprime issuers. Investigators would confront them with stacks of improperly documented mortgages and ask them why they put through mortgages with improper or even obviously false documentation.

Folks who took out a mortgage in years prior to bubble know the ordeal involved. You had to bring in your first grade teacher to vouch for your character. Everything had to be properly documented and was closely scrutinized. This was not the procedure that was followed in the bubble years. Justice Department investigators would ask the mortgage agents why they passed through mortgages without proper documentation.

Since this was a widespread practice and not the work of a few rogue agents, presumably office managers told these agents to get mortgages and that proper documentation did not matter. Faced with the risk of jail for committing fraud, it is likely that many agents would be prepared to testify that they were acting on instructions from their branch manager. The investigators would then confront their branch managers with the testimony from their employers and ask them what prompted them to tell employers to ignore standard procedures and pass through improperly documented mortgages. Again, faced the prospect of several years in jail, it is likely that many branch managers would be prepared to testify against their bosses at the corporate headquarters. (The Justice Department has pursued this sort of investigation in going after illegal campaign contributions to Washington Mayor Vincent Gray.)

The same practice would be followed at Goldman Sachs, Morgan Stanley, and the other investment banks that securitized the loans. The folks who were constructing the securities are all smart people who know what a good mortgage looks like. They surely knew that many of the mortgages they were throwing into the pools were not properly documented and almost certainly fraudulent. In these cases the Justice Department investigators would ask the Harvard MBAs whether they are really stupider than rocks.

At least some would admit to not being morons and acknowledge that they knowingly packaged fraudulent mortgages into securities. These bright young ambitious MBAs would then be offered the opportunity to stay out of jail if they told investigators why they thought it was a good idea to package fraudulent mortgages into mortgage backed securities.

Would this process have put Jamie Dimon, Lloyd Blankfein, Robert Rubin and the rest behind bars? Who knows, but we know with certainty that the Justice Department never started on this path so there was no way that the honchos could ever be held accountable for any crimes they did commit. This speaks volumes about the nature of justice in the United States today.

There is one other issue that is worth addressing here. Many commentators have argued that the honchos were foolish, not crooked. They really did believe that the house prices would just keep rising. In this case all the mortgages would end up being good mortgages. (If a bank forecloses on a fraudulent loan where the house has appreciated 20-30 percent, it is not likely to suffer a loss.) 

It is entirely possible that the top people at the banks really did believe that the bubble would keep inflating indefinitely, but it is also irrelevant. (The Enron boys may have believed they really had a good business model. That doesn't change the fact that they broke the law.) The issue at hand is whether they knowingly issued and passed along mortgages that were not documented properly. That is fraud and a criminal act. It doesn't change anything if they were also stupid.

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A NYT commentary by Jeff Sommer told readers that the Fed is not likely to focus much on recent trends in stock and housing prices at its next meeting because asset prices are not part of its mandate. The piece commented:

"Even if such issues [recent trends in stock and house prices] provide a subtext for Fed discussions, the direct effects of Fed policy on the stock and housing markets may not be an explicit part of the Fed’s agenda this week.

"That’s partly because Congress didn’t include financial asset prices in the Fed’s mandate, which is 'to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.' Those stable prices referred to items like cars, food and shoes, not to financial assets like stocks and bonds, whose price levels fall outside the Fed’s traditional purview."

The last two recessions were caused by collapses in asset bubbles. These collapses had enormous impact on employment, as well as inflation and interest rates. It would be absurd for Fed officials to say they will not focus on asset prices because they are not directly part of their mandate.

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Fortunately for Mr. Will, he works for Jeff Bezos, a man who accumulated $32 billion (more than 40 percent of the annual food stamp budget) by assisting people in evading state and local sales taxes. (Under most state laws, people are obligated to pay sales tax on items they buy over the Internet, however enforcement is essentially zero. The amount of tax that Amazon customers have avoided as a result of purchasing over the web is at least an order of magnitude greater than Amazon's profits since it inception.) Given his background, Bezos would probably not be concerned that Will misrepresents facts to readers.

Will starts by complaining that President Obama's proposal to raise the minimum wage would "do very little for very few." Since the Congressional Budget Office just calculated that the proposed wage hike would directly or indirectly raise the wages of 25 million workers, Will must be giving new meaning to "very few."  He then goes on to complain about the farm subsidies in the new agriculture bill, referring to the "geyser of subsidies" in  "the $956 billion farm legislation." Whatever the merits of the subsidies, they come to less than 10 percent of the total cost of the $956 billion figure highlighted by Will.

Will next complains about the increase in spending on food stamps, telling readers:

"Between 2000, when 17 million received food stamps, and 2006, food stamp spending doubled, even though unemployment averaged just 5.1 percent ." While some of this rise was attributable to increased outreach to eligible families, the employment picture had deteriorated sharply from 2000 to 2006, with the employment to population ratio dropping by 1.5 percentage points. This corresponds to 3.4 million fewer people working. (It's not clear what information Will thinks he is providing by giving the average unemployment rate for the period. If we are looking at changes, it is the endpoints that matter.) Also, food prices rose by 16 percent over this period, which explains a substantial portion of the increase in spending. (Will's source shows that the 2000 level of beneficiaries was a low-point driven by the strong economy of the late 1990s. The number of beneficiaries in 2006 was still below the number in 1995.)

We then get this great invention from Will:

"We spend $1 trillion annually on federal welfare programs, decades after Daniel Patrick Moynihan said that if one-third of the money for poverty programs was given directly to the poor, there would be no poor."

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Some folks might think that the point of a newspaper is to provide information to readers. Those people have nothing to do with reporting at the Washington Post. That is why, in an article on unexpected state budget surpluses, the paper told readers that capital gains taxes from the initial public offerings of Facebook and Twitter generated $3 billion in unexpected revenue for California, that Florida's legislature is voting on a $400 million tax cut, and Idaho is projecting an $80 million surplus.

These are all very cute numbers which probably mean almost nothing to 99 percent of Washington Post readers. If the paper was actually trying to inform readers it might have told them that the money from Facebook and Twitter amounts to approximately 3 percent of the state's revenue for a year. It could have told readers that Florida's proposed tax cut comes to a bit more than $20 per person and that Idaho's projected surplus is equal to just under 3.0 percent of its budget.

While most Post readers understand percentages and can relate to to a per person dollar amount, it is unlikely that many are familiar with the size of these states budgets or economies offhand. They could take two minutes to look this information up on the web, but most readers will have less time for this task than the Washington Post's reporter. In fairness, the piece did point out that a proposal to use $4.6 billion to fund pre-kindergarten programs would take up about 3 percent of the state's overall budget. (The higher level of implied spending presumably includes money other than what appears in the general budget.)

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