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 highlighting the latest Beat the Press posts.

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The Washington Post is famous for relying on David Lereah, the chief economist for the National Association of Realtors (NAR) and the author of Why the Housing Boom Will Not Bust and How You can Profit from It, as its main source for information on the housing market during the bubble. It apparently still has not learned that the NAR is not a neutral source of information on the housing market.

It printed without question an assertion from Lawrence Yun, Mr. Lereah's successor, that as many 180,000 people who qualify for the first-time homebuyers credit (which also applied to some existing owners), may have signed a contract by April 30th (meeting one deadline), but be unable to close by June 30th, a second requirement for the credit.

Let's look at this one. The number of existing homes sold in April was about 470,000. Since it generally takes 6-8 weeks between contracts and closings, this implies there were about 470,000 homes contracted in February. The pending sales index rose by about 13.5 percent between February and April, which means that there were about 540,000 existing homes placed under contract in April. The Commerce Department reports that there were 48,000 new homes put under contract April for a total of 590,000 homes.

Many of these homes would not qualify for the credit either because the buyer previously owned a home (but not long enough to qualify for the move-up credit) or due to the income caps. If we assume that 75 percent of the homes contracted in April qualify for the credit, this would mean that roughly 440,000 people signed contracts in April who qualify for the credit.

Mr. Yun's claim that 180,000 people who signed contracts before the deadline may not be able to close by June 30th would mean that more than 40 percent of these buyers are in this situation. While there was somewhat of a surge in buying in April, it did not approach the levels reached at the peak of the bubble in 2005-2006. It is therefore difficult to believe that it could have created too much of a backlog of paperwork. Furthermore, the mortgage applications index indicates that sales plummeted after the end of the month, so there would be few new sales for mortgage processors to deal with.

In short, there is little reason to believe that the vast majority of sales qualifying for the credit could not be completed within two months of the contract date. (Remember also, sales were spread over the month. Someone who signed on April 15th has more almost 11 weeks to meet the deadline.) Mr. Yun's estimate likely exaggerates the number of people in this situation by an order of magnitude. The Post should learn that people who work for trade associations are not good sources for unbiased information.

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David Brooks doesn't like the stimulus, as readers of his columns know. Today he engages in a bit of magical thinking in putting out his case for deficit reduction.

His first invention is telling us: "deficit spending in the middle of a debt crisis has different psychological effects than deficit spending at other times." This is very interesting, what "debt crisis" is Brooks referring to? We can point to a debt crisis in Greece, and arguably Portugal and Spain, but it is not clear what that has to do with the argument for stimulus in the United States. There were debt crises in Latin America in the 80s, no one ever raised these in the context of the Reagan era budget deficits.

In the real world we would look to things like the ratio of debt to GDP in the United States (@60 percent) and compare it to the ratios in other countries and to the U.S. at other points in time. There are several countries with debt to GDP ratios of far more than 100 percent who are able to borrow money with no difficulty. For example, Japan has a debt to GDP ratio of more than 110 percent yet it pays less than 1.5 percent interest on its long-term debt. Right after World War II the debt to GDP ratio in the United States was also over 110 percent, yet interest rates were low and the economy had decades of solid growth.

The next thing we would do in the real world is look at the interest rates that the United States is currently paying. At present the interest rate on 10-year Treasury bonds is about 3.2 percent, near a post-World War II low. In short, the debt crisis is magic -- an invention of David Brooks -- not something that exists in the world.

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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