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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For more than a month BP was telling the world that the rate of leakage from its well was just 5,000 barrels a day. It now appears that the size of the leak is actually an order of magnitude greater. How could BP be so far off the mark? Did they really not have a clue? (What do people get paid for at this company?) Or, where they deliberately not telling the truth?

And the question that we ask here at BP, why aren't the media asking this obvious question?

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That's a question that NPR listeners might ask after being told that the differences between organized labor and President Obama were due to the President's political pragmatism. Many of the differences stem from President Obama's willingness to serve the interests of powerful business groups such as the pharmaceutical industry, the insurance industry, and the big banks. President Obama's positions may be viewed as politically "pragmatic" in that these are very powerful interests who can badly hurt politicians who cross them, but they are not politically pragmatic in terms of being responses to public sentiment. It would have been useful if this report had made that distinction. Add a comment

It's great that the Post is able to find the truth in such matters. It told readers:

"For all of Wall Street's money and power, it has been a different army of lobbyists that has proven most effective over the past year in shaping the financial overhaul legislation on Capitol Hill. Again and again, big banks have been outpaced by small-town interests, proving that even when it comes to overhauling financial regulation, politics really is local."

Let's see, two years ago the big banks were rescued from bankruptcy by the helping hand of Big Government. Today, they are again making record profits and awarding record bonuses to top executives. Congress never seriously considered breaking them up and taking away the implicit government security blanket of "too big to fail," a subsidy that could be as much as $36 billion a year. It also is unlikely to impose the sort of Glass-Steagall separations that would prevent the big banks from speculating with taxpayer insured dollars.

Some people might think that this outcome suggests that the big banks are calling the shots. Thankfully we have the Post to tell us otherwise.

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Probably not, but most readers of the Post probably don't realize that this is what is at stake in the debate over a proposal by the Democrats that would raise taxes on the foreign earnings of U.S. corporations by $14 billion over the next decade. This sum is equal to approximately 0.05 percent of projected imports over this period. It would have roughly the same effect on trade overall as a drop in the value of the dollar relative to the euro from 1.2 dollars to the euro to 1.203 dollars to the euro. (The decline in the value of the dollar affects both imports and exports.) In other words, this tax will have no measurable effect on the trade balance even though many politicians will likely make a big issue out of it. Add a comment

That is what the Washington Post argued in an article on President Obama's deficit commission today. The article told readers that: "Adjusting Social Security benefits is a likely point of consensus, commission members say." [The word "adjusting" is presumably a typo. The only way to reduce the deficit is by cutting benefits.]

The Social Security trust fund holds more than $2.6 trillion in government bonds. According to the Congressional Budget Office, this money will be sufficient, along with current tax revenue, to pay all scheduled benefits through the year 2044. The decision to cut benefits would effectively mean defaulting on these bonds -- denying workers the benefits that they have already paid for through the designated Social Security tax.

The article misrepresents the finances of the program by telling readers that: "Social Security has been self-supporting since 1935, with taxes paid by current workers financing benefits for current retirees." This has not been true since the Greenspan Commission's recommendations were implemented in 1983. The commission's plan raised taxes and the normal retirement age, thereby reducing benefits. This led to a substantial degree of pre-funding, allowing the trust fund to accumulate more than $2.6 trillion in government bonds over the last quarter century.

As a result of this prefunding, the article's comment later in the paragraph: "Sometime in the next few years, taxes will no longer cover benefits," has no relevance to anything. Under the law, Social Security benefits are paid out of the trust fund, it makes not an iota of difference whether annual Social Security tax revenue is greater or less than annual benefit payments. This is an invention of the Washington Post and critics of Social Security.

The next paragraph tells readers:

"The program's defenders argue that there is no crisis: If Treasury would repay billions of dollars in surplus Social Security taxes borrowed over the years, the program could pay full benefits through 2037. But many budget experts question whether supporting the existing benefit structure should be a cash-strapped nation's first priority."

It is worth noting that the decision not to "repay billions of dollars in surplus Social Security taxes," is effectively a decision to default on the portion of the government debt held by the Social Security trust fund. It is worth highlighting this point so that readers understand the position being advocated by "many budget experts."

 

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The NYT discussed the likely path of fiscal and monetary policy. It noted that it was unlikely that the Fed would adopt a substantially more expansive path concluding with a quote from an economist: "A second round of quantitative easing at the moment would substantially increase inflationary risks."

It is worth noting that there is no economic theory that shows quantitative easing (the Fed buying long-term bonds) leads to inflation when the unemployment rate is far above normal levels, as is the case at present.

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The lead Washington Post editorial complained that the pro-stimulus crowd is not supporting its plan to cut Social Security benefits or to raise taxes on the middle class as a path to deficit reduction, insisting that this means they are not serious about reducing the deficit in the long-term. In fact, many progressives have supported measures that would address the long-term budget problem with items like a financial speculation tax.

There are also measures that would substantially reduce health care costs like publicly funded clinical drug trials which could allow all drugs to be sold as generics for $4 per prescription. This would save hundreds of billions annually in spending on prescription drugs. We could also allow Medicare beneficiaries to buy into the more efficient health care systems of other countries, with the government and the beneficiaries splitting the savings. This could save trillions of dollars in the decades ahead.

However, the Post does not even want these ideas discussed since they could hurt the powerful interest groups whom they favor. Rather, the Post insists on measures that will low and middle income families.

It is also worth noting that the reason the deficit has soared in the last few years has been due to the collapse of the housing bubble. If the Post had not almost exclusively on economists who could not see an $8 trillion housing bubble as its sources and for its oped page content, it is possible that policymakers would have noticed the bubble and acted to rein it in before it grew large enough to wreck the economy. Add a comment

With so much focus on the deficit it's probably hard to keep track of things like the unemployment rate. This is the likely explanation for a USA Today article that told readers in its first sentence: "last week's disappointing report on the job market may not be as dreary as it appears."

The article explained that many of the 411,000 workers who took jobs with the Census may have taken private sector jobs had they not had the option of working for the Census. According to the article, these people opted to take what they viewed as relatively high-paying and easy temporary jobs rather lower paying permanent positions in the private sector. It refers to evidence of a similar effect in prior years when Censuses were conducted.

It is important to note that the question is not whether the Census workers would have taken other jobs (they may have), but whether anyone would have taken the other jobs. The argument in USA Today is that low-paying jobs have gone unfilled because employers, who would have hired the Census workers, view other applicants as being unqualified. The comparisons to past Census years is dubious. The unemployment rate was 4.0 percent in 2000 and 5.0 percent when the 1990 Census was being conducted.

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In a short piece on consumer borrowing the Washington Post told readers that: "economists are hoping that households will soon borrow more and help sustain the recovery." This may be true of the economists who Post reporters rely upon as sources, but it is not true of economists in general. Most households, including those at the edge of retirement have very little savings. With deficit hawks like the Washington Post editors and news reporters insisting on the need to cut Social Security and Medicare, it would be very unfortunate if these households did not increase saving and reduce their current consumption. The economists cited by the Post must want these people to live in or near poverty in their old age.
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