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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The company (incredibly named "Freedom Industries") responsible for the massive chemical spill in West Virginia that left hundreds of thousands of people without drinking water declared bankruptcy yesterday. This means that all of the people who had to suffer through days without water, and some who became seriously ill from drinking contaminated water, will likely not be compensated by this company for the damage it caused them.

Many people have referred to this spill as a failure of government regulation and blamed free-market fundamentalism. All of these folks should get checks from the various industry groups for major polluters.

Last I looked, believers in the free market supported property rights. Property rights mean not having someone else throw their waste on your property. If this is a difficult concept to understand, try erecting a slaughterhouse where the waste gets dumped on Bill Gates' front lawn. It's a safe bet that you will quickly be given a court order to stop immediately. If you ignore it, you will quickly find yourself in jail.

Are Bill Gates and other rich people who will have those who pollute their property thrown in jail believers in big government? For some reason this view that they have a right to not have people pollute their property and have the government enforce it gets put down as being part of free market fundamentalism. But when a West Virginia coal processing plant throws its waste into people's drinking water this is a question of government regulation?

It is easy to see how it is an advantage to rich people and to those who would like to be able to pollute with others bearing the cost to have these issues seen as fundamentally different in nature. But it is hard to see any logic that would justify this difference. And it is hard to see why anyone who doesn't want corporations to be able to pollute with impunity would accept this distinction.

People who don't want polluters to be able to operate with impunity are no more nor less market fundamentalists than Bill Gates when he has people arrested for dumping waste on his lawn. The only difference is whose rights are being respected.

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Floyd Norris has an interesting piece showing that apparel prices are now rising more rapidly than other prices, after almost three decades in which they sharply trailed other prices. This is potentially very good news for most of the country's workers.

The forces at play here are the fall in the value of the dollar and the rise in wages in developing countries, most importantly China. While the availability of low-paid manufacturing workers in the developing world has placed severe downward pressure on wages over the last three decades, as these wages rise this pressure may be alleviated in the years ahead. There is a still a large gap in wages, but the recent relative rise in apparel prices indicates that this gap is narrowing. This will make U.S. workers better positioned to share in the gains of economic growth going forward.

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David Brooks is sweating hard trying to defend the one percent against the rest of the country and reality. His column today desperately warns readers:

"Some on the left have always tried to introduce a more class-conscious style of politics. These efforts never pan out. America has always done better, liberals have always done better, when we are all focused on opportunity and mobility, not inequality, on individual and family aspiration, not class-consciousness."

Funny, I thought Social Security, the Fair Labor Standards Act (i.e. the 40-hour workweek), the National Labor Relations Board, and other products of the New Deal were pretty big accomplishments. Much of this was done quite explicitly with a sense of class consciousness. These were all measures that were backed by mass movements that sought to ensure that working people got their share of the economic pie. Good thing we have David Brooks to tell us the opposite.

This is far from the only place where Brooks seems to be at odds with reality. Brooks condemns focusing on inequality because it leads to ineffective policies like raising the minimum wage. He then cites a study by Joseph J. Sabia and Richard V. Burkhauser telling readers:

"Consistent with some other studies, they find no evidence that such raises had any effect on the poverty rates.

"That’s because raises in the minimum wage are not targeted at the right people."

Actually the Sabia and Burkhauser study goes against the overwhelming majority of other studies on the topic as summarized in this analysis by University of Massachusetts professor Arin Dube.

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This adjective appeared in a top of the hour news piece (sorry, no link) referring to the spending bill approved by Congress on Wednesday evening. It would be interesting to know how it made this assessment. While the government spends more money each year than any of its listeners will see in their lifetime, it spends less relative to the size of its economy than almost any other wealthy country. It is also spending less relative to the size of the economy than it did in the years 2009-2012. The domestic discretionary portion of the budget, which was close to half of the spending bill, is smaller relative to the size of the economy than it has been in decades.    

Given this reality, the piece could have with more legitimacy used an adjective like "reduced" or "sharply reduced" as "enormous."

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The New York Times news section praised the decision by French President François Hollande to cut social welfare spending and taxes in the same way that sports reporters trumpet the performance of the local team's quarterback. The article described the plan as moving in "a centrist direction" and said that "economic experts" were "gratified that Mr. Hollande finally seemed willing to wrestle with France’s intractable unemployment."

Really? Cutting spending when France's economy is still far below full employment is considered a pro-employment move by economic experts? Do these experts have any evidence to contradict the now vast literature, much of it produced by the International Monetary Fund, that shows such spending cuts will reduce growth and raise unemployment? (Paul Krugman does a nice job summarizing the case this morning. See also Mark Thoma.)

The point here is that the NYT is acting as a mouthpiece for the agenda of the right-wing in Europe. It is presenting a position that has been decisively defeated in the economic debates of the last five years as the consensus within the economics profession. If anything, the consensus view within the economics profession is that Hollande's program will slow growth and raise unemployment. France's economy needs more demand, not spending cuts.

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The NYT had a piece on mortgage financing that was written as though the housing bubble and crash never occurred. It includes the incredible assertion that homeownership is considered a way to get a firm financial foothold as though there were not overwhelming evidence that this is often not the case. Even before the bubble, housing was often a volatile asset.

There are many markets where people have seen their house prices crash along with their local economy. For example many people in Detroit saw the value of their homes plummet even as job opportunities disappeared. This means that at the same time that their prospects for a good paying job were vanishing, they saw their life's savings also disappear. It was not clever to tell people in Detroit to invest in a home in the 1970s or 1980s.

In the bubble years house prices became much more volatile making the risks of homeownership far greater. Since housing is always a highly leveraged asset, the potential loss of wealth is enormous. If someone buys a home putting 20 percent down and it loses 10 percent of its value, they have lost almost half of their investment. If they just put 10 percent down, they will have lost almost all of their investment with a 10 percent price decline.

In addition, there are large transaction costs associated with homeownership. The round-trip cost of buying and selling a home are around 10 percent of the sales price. This means that if a house is selling for roughly 15 times what the annual rent would be, a homebuyer would throw away 1.5 years' worth of rent in transactions costs. (If the price-to-rent ratio is 25, as was the case in many bubble markets, the transactions costs would be 2.5 years' worth of rent.) In an economy where people often have to move to get a job, many homeowners will be forced to sell their homes much earlier than they expected.

For these reasons, people who paid attention to the housing market over the last decade generally think of homebuying as a way to make the financial sector rich. Its benefits to homeowners are far more questionable.

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I find "free-trade" twice in the text and once more in a quote in this short piece on the Trans-Pacific Partnership. It is an inaccurate characterization of the deal. Many parts of the deal have nothing to do with free trade; they are about setting regulatory standards. Some parts, like the section on patent and copyright protection, are about increasing protectionist barriers. This is 180 degrees at odds with free trade.

So what's the problem here? Why does the NYT feel the need to waste words and makes its article longer in a way that misinforms readers. Can't it just refer to the Trans-Pacific Partnership as a "trade agreement?"

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David Leonhardt, the NYT's Washington editor, committed the paper several months ago to putting large numbers in context in response to a complaint raised by Public Editor Margaret Sullivan. There is still no evidence of this effort in the paper's budget reporting.

That is very clear in a piece today on the latest budget agreement in Congress. The article tells readers:

"The legislation also would impose new requirements for the Internal Revenue Service in reporting its activities to the public and Congress after the agency’s scrutiny of Tea Party groups’ applications for nonprofit status. The $11.3 billion appropriated for the I.R.S. is down $503 million from the level enacted in 2013.

"No money would be given to Vice President Joseph R. Biden Jr.’s high-speed rail projects, or to Mr. Obama’s preschool development grants program."

Okay, how large a share of the budget is $11.3 billion? How much money did the administration request for Mr. Biden's high-speed rail projects or the preschool development grant program? Readers would have no clue how important these items are to the budget.

Later we are told:

"In contrast, Head Start, which also suffered last year, would see a $612 million increase, enough to restore the sequestration cuts."

Is this a big deal? How much does Head Start get in total now?

And we are told:

"The bill would cut $1 billion from the Affordable Care Act’s Prevention and Public Health Fund, which Republicans have long targeted, fearing the administration would use it to bolster the law’s online insurance exchanges."

Is this a one year appropriation?

For those interested, you can go to CEPR's real cool Responsible Budget Reporting calculator and find out that the $503 million cut to the IRS comes to 0.014 percent of the total budget, with the total $11.3 billion coming to 0.31 percent of the budget. (This one will actually likely cost the government money since it means that we will collect less revenue from people ripping off the government.)

Head Start will be getting around $7.7 billion in 2014 as best I can tell, that comes to 0.21 percent of the budget. The $612 million increase is 0.017 percent of the budget. And the $1 billion for the Affordable Care Act Fund would be 0.023 percent of the budget, assuming that it is a one-year appropriation.

Anyhow, this sort of context should have been in this article. As it's written it provides almost no information to almost all NYT readers. There is no defense for this sort of reporting and everyone knows it. What does it take to get the NYT to change?

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The NYT had yet another silly front page piece warning that Obamacare is about to go under, this time because not enough young people are signing up. If it keeps doing this, people will mistake it for a Jeff Bezos publication.

The point, which was shown in this Kaiser Family Foundation analysis, is that the age skewing really doesn't matter much for the success of the program. The fee structure of Obamacare is designed to somewhat favor older enrollees, but the gap is not very large. The Kaiser study found that even large skewing toward older enrollees would only raise the cost by 2.0 percent.

The real issue is the risk of a skewing by health condition. If healthy older people sign up it actually benefits the plan far more than if the "young invincibles" sign up since the older people will pay three times as much for their insurance and basically get nothing back from the program. (My readers only seem to know sick people in the age group 55-64. In the real world, many are quite healthy. I couldn't find a quick reference for costs of the 55-64 cohort, but the cheapest quintile of Medicare beneficiaries cost on average just $331 per person on average. Presumably the cost for the bottom quintile of the 55-64 group would be even less.)

Anyhow, any serious discussion of the progress of the program would look for evidence of skewing by health condition. Remarkably, this NYT piece concludes with some good evidence on the health condition of enrollees, but failed to note it as such.

It told readers:

"Of people choosing plans so far, 60 percent selected silver plans and 20 percent signed up for bronze plans. Thirteen percent chose gold plans, and 7 percent platinum coverage."

This means that 80 percent of the people who have signed up for Obamacare have signed up for plans that will leave them with substantial deductibles and co-pays. Someone with severe health problems will know that their costs will far exceed these deductibles, so they would sign up for the most expensive plans in the system. Since the vast majority have not signed up for the gold or platinum plans it is reasonable to assume that they are not in bad health.

 

Addendum:

NPR committed the same sin in its top of the hour news segment on Morning Edition.

The Post also featured the same story although it did reference the Kaiser study noting that age-skewing will not be a huge problem.

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This Monday morning's gift comes in a column discussing the state of battle in the War on Poverty. He tells readers:

"Worse, the breakdown of marriage and spread of single-parent households suggest that poverty may grow. From 1963 to 2012, the share of families with children under 18 headed by a single parent tripled to 32 percent. It’s 26 percent among whites, 34 percent among Hispanics and 59 percent among African Americans. Just why is murky. Low-income men may flunk as attractive marriage mates. Or, “women can live independently more easily rather than put up with less satisfactory marriages,” as Brookings’s Isabel Sawhill says. Regardless of the causes and despite many exceptions, children in single-parent households face a harder future. They’re more likely to drop out of school, get pregnant before age 20 or be unemployed. Poverty becomes self-perpetuating."

The fallacy is that children are more likely to face hardship if their parents separate as oppose to remain together in a bad marriage. This point is easy to see.

Suppose that one third of marriages are very bad and possibly abusive, however it is illegal to get a divorce so that all parents remain married. Now suppose laws and norms change so that these parents can now divorce. In this case, we would have one-third of parents (mostly women) raising children on their own. Since these parents are the sole support of their kids, it wouldn't be surprising that their children would have a more difficult time than children who could benefit from the financial and emotional support of two loving parents. In addition, because the most troubled families had broken up, the married couples after the change in laws and norms would provide more nurturing families on average than before the change.

While a simple comparison of children in two-parent families and single-parent would undoubtedly show that children in two-parent families are doing better. However, it is wrong to infer from this fact that the children in single-parent families are doing poorly because their parents broke up. Whether or not children of parents who have a bad relationship are better off if they stay together is far more questionable.

The most obvious way to deal with the problems faced by children in single-parent families is to improve public supports such as quality child care and paid sick days. Countries that have such supports do not see the same story in child outcomes as the United States.

 

 

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