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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Would good tax policy lead to the second coming? It is a little bizarre to read in a news story that the first time buyers tax credit: "may have helped avert financial Armageddon." Yeah, right, what is this supposed to mean, that the reporter liked it?

News story should report on news. They can include opinions from observers. It should not include bizarre speculation with nothing to support it.

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USA Today reported that higher wages for Chinese workers could mean higher prices for U.S. imports for China. While the paper reported this as bad news, this is exactly the process through which the U.S. corrects its trade imbalance. There is no other way.

It is also worth noting that higher Chinese prices will work to the benefit of workers who have been placed in direct competition with Chinese workers. While trade negotiators from both parties have actively worked to place U.S. manufacturing workers in direct competition with low-paid workers in China, they have largely left in place barriers that protect doctors, lawyers and other highly-educated professionals from competition with their much lower-paid counterparts in China.

As a result of these one-sided protectionist policies, wages of non-college educated workers in the United States have fallen relative to more highly educated workers. The increase in wages for this segment of the Chinese labor force will improve the relative position of non-college educated workers in the United States. The benefits on the trade balance and for non-college educated workers should have been mentioned in the article.

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In the world of Washingtonspeak, history gets rewritten right in front of your eyes. No doubt we will soon discover that the environmentalists were the ones drilling off the coast of Louisiana.

In the spirit of the historical rewrite, Michael Crittenden tells readers in the WSJ blog Real Time Economics that: "the Fed has been a top target for criticism and skepticism following the government’s response to the 2008 financial meltdown."

Uh no, that's not quite right. The Fed has been a top target of criticism because the people running the Fed, Alan Greenspan and Ben Bernanke, could not see an $8 trillion housing bubble, the collapse of which wrecked the economy. This was one of the most astounding acts of economic incompetence of the last century. The fact that the Fed's response to the financial turmoil caused by the collapse of the bubble seems more focused on saving Wall Street than the economy has not helped its standing.

 

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Marketplace radio repeated the National Association of Realtors' (NAR) nonsense that 180,000 homeowners who purchased homes in April may not be able to qualify for the first-time buyers' credit if the original deadline that requires a closing by the end of June is left in place. The NAR wants the deadline extended to the end of September.

As noted earlier, this claim is absurd on its face. While there was an uptick of homes sales in April, this was from rather depressed levels. The April sales volume did not approach the sales levels at the peak of the boom in 2006. At that time, the vast majority of closings took place within 6 to 8 weeks. Therefore, there is little reason to believe that this should not have been the case with the April sales as well.

This is especially likely to be the case since new contracts plunged (as measured by mortgage applications) immediately after the expiration of the credit. This means that workers would be freed up to handle the contracts signed in April.

The main effect of the extension of the credit being pushed by the NAR is likely to be to promote fraud. Many contracts are likely to be backdated so it appears that they were signed before April 30th and therefore qualify for the credit. The NAR has likely exaggerated the number of people potentially affected by the June deadline by at least an order of magnitude.

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The Washington Post had a front page article on how delay has raised the cost of the Greek bailout effort. The article told readers:

"the cost of helping Greece avoid default increased about fourfold, to $140 billion from roughly $35 billion at the start of the year. Confidence in the European economy was so badly battered that European leaders together with the IMF had to pledge another nearly $1 trillion to reassure investors."

While the point about the cost of delay is well-taken (it would have been easier to reassure markets with a strong commitment early by the European Central Bank and the IMF), the measure of costs is very misleading. The $1 trillion figure is a measure of loans and guarantees, not actual outlays. During the U.S. financial crisis, the Fed and Treasury extended more than $10 trillion worth of loans and guarantees by some measures. The overwhelming majority of this money involved guarantees that were never actually needed or loans that were repaid in full. This is likely to be the case with the European commitments as well.

It is important to make the distinction between this sort of confidence building effort and actual money out the door. The Washington Post and other news outlets were able to make this distiniction quite effectively with the U.S. bailout (in fact, they have misleading reported that the government has made money on these bailouts). Presumably they can apply the same analytic skills to their discussion of Europe's bailout.

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In his speech on the BP oil spill President Obama discussed his clean energy agenda. At one point he said: "There are costs associated with this transition, and some believe we can't afford those costs right now."

It would have been worth pointing out that the opposite is true. Measures to shift to alternative forms of energy require increased resources. At present, with the economy operating well below full employment it has a vast amount of unemployed labor and idle capacity. In principle, some of these idle resources can be used to promote the switch to alternative energy or for measures that promote conservation.

We would have less money for this transition if the economy were near full employment and there was little idle capacity. In that situation, the only way to get resources for the transition would be by pulling them away from their current uses. This would mean effectively some types of tax on current consumption patterns. At the moment, any taxes on can be fully rebated to consumers with little cost to the economy.

Reporters who cover this issue should be aware of these facts. It would have been appropriate to correct President Obama on this statement.

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It's no secret that New York Senator Charles Schumer is very close to Wall Street. As a senator from New York he directly represents Wall Street firms and their employees. He also gets huge amounts of campaign contributions from Wall Street. For this reason it would not be surprising that he would oppose any measure that changes the way business is conducted on Wall Street.

This is why it is surprising that the NYT told readers that: "Even Senator Charles E. Schumer (emphasis added)" raised questions about an amendment put forward by Senator Al Franken that would require that credit rating agencies be selected by the SEC rather than the issuer seeking the rating. The current situation creates an obvious conflict of interest since the credit rating agency has an incentive to issue positive ratings to ensure more business. Senator Franken's amendment eliminated this conflict by taking away the power for the issuer to pick the agency.

Given his close ties to Wall Street, it would be surprising if Senator Schumer would support any measures that interfer with a pattern of business that is very profitable for both issuers and credit rating agencies. The article notes that Schumer originally voted for the Franken amendment. It is of course common for members of Congress to vote for popular measures when they know that their vote will not make a difference. Since the Franken amendment passed with strong bi-partisan support, Senator Schumer's vote would not have made a difference in its passage. It does however give him more standing now with naive observers as he works to kill it.

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The media have been highlighting projections produced by the military that show that Afghanistan may have $1 trillion of mineral wealth. It would be helpful to put this figure in some context. The NYT helpfully described this sum as being equal to $38,482.76 for every person in Afghanistan.

It would be useful to note that this is a gross number, it does not subtract the cost of extracting the minerals nor does it consider that these resources would likely be extracted over many decades. If we assume that the cost of extracting the minerals (e.g. foreign produced equipment, foreign trained technicians, profits of foreignh companies and environmental damage  -- not counting domestic Afghan labor) is between 25 and 50 percent of the value of the minerals, then the money going to Afghanis would be between $500 billion and $750 billion.

If this money is earned over a 40-year period (Saudi Arabia has been producing oil for 80 years), then it comes to between $12.5 billion and $18.8 billion a year. Afghanistan's population is currently 29.1 million, but it is growing at the rate of 2.5 percent annually. Assuming the growth rate slows, Afghanistan's population will average about 40 million over this period. This means that the revenue from the minerals will average between $312.50 and $470 per person per year. This is still likely to have a substantial impact on Afghanistan's economy, since its current GDP per capita is just $800 on a purchasing power parity basis.

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The Washington Post reported on the opposition in Congress to spending more money to aid financially strapped state and local governments or unemployed workers. It highlighted the complaint of Nebraska Senator Ben Nelson that President Obama's request for $80 billion was in appropropriate in a situation where the government has a $12 trillion debt.

It would have been helpful to include some discussion of the economic implications of the opposition to this bill. The economy will be weaker if Congress refuses to appropriate the funds requested by the Obama administration. Assuming a multiplier of 1.5 (most of the proposed spending is generally estimated to have a relatively high mutliplier), not spending this money will reduce GDP by $120 billion.

When it outlined its stimulus plan, the Obama administration assumed that a 1 percentage point increase in GDP creates 1 million jobs. This implies that a loss of $120 billion in output would lead to a loss of 800,000 jobs. It would help readers assess the proposed spending if they understood its likely economic impact.

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There is something incredibly otherworldly about current economic policy debates. We are sitting here with almost 10 percent of our workforce unemployed. Let's repeat that so even a policy wonk can understand it: almost 10 percent of the workforce is unemployed. That means people with the skills and desire to work cannot find jobs. The problem is too few jobs, too much supply  of labor, got it?

Nonetheless, there is now a national fixation on the problems of an aging population. The story is that we will have too few workers to support too many retirees. That's a problem of too little labor.

At a time when we have the greatest oversupply of labor since the Great Depression, we are now supposed to be terrified that in a few very short years we will not have enough labor. Is that possible?

Not if we know arithmetic. The NYT gave us a little glimpse of this horror story in its Economix blog today. It showed that the ratio of dependents (defined as people over 64 or under 20) to working age people (those between the ages of 20 and 64) is supposed to rise from 0.67 today to 0.74 in 2020, and 0.83 in 2030; pretty scary, right?

Well suppose we defined a slightly different dependency ratio. This will be the ratio of people who are not working to the people who are. The idea being that people who are working must support the people who are not, regardless of their age.

In 2010, this ratio stands at 1.22. We have 139.4 million people working and 170.1 million not working. However, if we assume that we get back to near full employment and the labor force grows as the Congressional Budget Office projects and population grows as the Census Department projects, this dependency ratio will have fallen to 1.05 in 2020 and then rise to 1.07 by 2030. So, are we scared yet?

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