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 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.



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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It is interesting who signs up for Obamacare and who doesn't, but the idea that we need the "young invincibles" to save the program is just flat out wrong as a recent analysis by the Kaiser Family Foundation showed.  For this reason it was disappointing to see this piece by Sarah Kliff in Wonkblog this morning.

There is a big issue as to whether enrollment is skewing by health. If sick people disproportionately sign up for the program then it will make its finances untenable. But age really doesn't matter much in this story. A healthy older person will on average pay three times as much to support the program as a healthy young person, with neither getting any significant payback since they are healthy.

That's the arithmetic, it's about as simple as it gets.

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That's what readers everywhere are asking after seeing Thomas Friedman's column touting the new world in which technology will not only replace less-skilled workers, but will also make workers with considerable skills redundant. This view is 180 degrees at odds with the view often expressed in Thomas Friedman's columns that we are facing a period of serious scarcity due to the burden of supporting a massive generation of retired baby boomers (for example here and here). If robots are going to make it so that we don't need any workers then we should be delighted that so many baby boomers are retiring since this will at least open up some jobs for young people. (Of course we could all just work fewer hours, but that is far too simple a solution for big thinkers.)

While the prospect of a huge surge in productivity growth described in Friedman's piece would be great news (we could easily feed and house the world and stop global warming) there is no evidence of it in the data. Productivity growth has averaged just 1.3 percent annually over the last four years, far below the growth rate of the prior decade and even below the 1.5 percent growth rate in the years of the productivity slowdown from 1973 to 1995.

Note; Productivity numbers corrected, thanks LSTB.

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The lead editorial in the Washington Post today called on Congress to approve "fast-track" authority which would require that new trade deals be put to a vote on an accelerated timetable without any possibility of amendment. It made this argument based on the proposition that such deals could boost growth and create jobs.

This assertion is extremely misleading at best. It is questionable whether such deals will have any positive impact on growth at all and the potential gains would be trivial in any case. One of the deals that would likely come up under fast-track authority is an EU-U.S. trade agreement. A study (Table 16) by the Centre for Economic Policy Research in the U.K. (which is supportive of the deal) concluded that in its mid-point scenario GDP would be 0.27 percentage points higher in 2027 as a result of the deal. This implies a boost to annual growth of 0.015 percentage point, an amount that is far too small to be picked up in our measurements of GDP.

This figure should be viewed as optimistic since it doesn't take account of any losses that might result from higher prices for pharmaceuticals and other products as a result of stronger protections for patents and other intellectual property claims. When these measures are taken into account it is very likely that this deal will be a net drag on growth. The same is true of the Trans-Pacific Partnership, the other major deal likely to be come up under this fast-track authorization.

Both deals are not really about "free-trade" even though the Post uses this term repeatedly. In most cases the formal trade barriers between the United States and the countries in the agreements are already very low. These deals are in fact primarily about putting in place a structure of regulation that will over-ride national and sub-national governmental bodies. In some cases, such as with intellectual property protections, these regulations are 180 degrees at odds with free trade. They will raise prices and reduce the flow of goods and services.

In other cases, the regulations will likely restrict the ability to impose legitimate health, safety, and environmental regulations. For example, they may make it more difficult to regulate fracking to ensure that oil and gas companies don't pollute groundwater. They may also make it more difficult to impose restrictions that would have prevented the sort of chemical spills that have denied much of West Virginia drinking water in the last week. These deals may also limit the ability of regulators to rein in the financial sector to prevent the types of abuses that fed the housing bubble and led to the financial crisis.

These are the sorts of issues that are at stake with the agreements that will likely come up under fast-track authority. The Post is seriously misleading its readers by calling them "free-trade" deals and claiming that they would have any noticeable impact on jobs and growth. In this respect, it is probably worth noting that many of the Post's major advertisers, such as drug companies and defense contractors, stand to be big gainers from these deals.

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An article on efforts to persuade President Obama to drop his proposal for adopting the chained CPI for indexing Social Security benefits told readers:

"liberal policy experts estimate [the change] could cost seniors thousands of dollars in benefits over their lifetimes."

This is not something that just liberal policy experts have estimated, it is a fact. The proposal would reduce annual benefits after retirement by roughly 0.25 percentage points a year compared with the current index. That would lead to a reduction in benefits of several thousand dollars for a worker who lives to collect benefits for twenty or thirty years. This is how the change would save the government money.


Note: I wrongly attributed this to Politico in the original post. Thanks to Robert Salzberg for catching the mistake.

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Brad Plummer reports on a study from the Urban Institute which purports to explain the drop in labor force participation as a story of fewer people entering the workforce after a period of being out of the workforce, as opposed to more people leaving. This explanation actually is not supported by the results shown in the study. 

The study finds only a very slight falloff in the entry rate for prime age men (Table 2), even though there has been a sharp falloff in their labor force participation rate. On the other hand it shows the sharpest declines in entry for older workers, who in fact have seen a decline in labor force participation. This suggests that the study's sample is not reflecting larger labor force conditions. (The study uses the Survey on Income and Program Participation, which has a considerably smaller sample size that the Current Population Survey that is conventionally used for labor market analysis. There is likely also a problem with people dropping out of the survey, who are likely to be a particularly large share of those dropping out of the labor force.)

It's also worth noting that their analysis only looked at the falloff in labor force participation rate in one year, from 2010 to 2011. In that year we saw a drop 0.6 percentage points of a total falloff of 2.1 percentage points for prime age women and 0.7 percentage points of a total falloff of 3.4 percentage points for prime age men.

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