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 NYT asks the right questions in this piece on the European Central Bank's (ECB) policies. The ECB continues to insist that its main job is fighting inflation even though there is no inflation in sight. As the article points out, deflation is likely to pose the bigger risk for the immediate future. Add a comment

This could have reasonably been the headline of news articles on the decision of many moderate Democrats to demand a smaller package of unemployment benefits and assistance to state and local governments. Instead, neither article noted at all the negative impact that the cuts would be expected to have on growth. The NYT piece even invented an alternative history, telling readers that the current debt and deficit levels come from a "lavish spending spree engaged in by both parties over the past decade," as opposed to being the result of an economic collapse caused by the bursting of the housing bubble.

The plans by the deficit hawks seem likely to trim $30 billion in unemployment benefits and aid to the states from the bill. Using the methodology in the Romer-Bernstein paper put out by the Obama administration to promote its stimulus package, the cuts will reduce GDP by approximately $50 billion. This will correspond to a job loss of more than 300,000 people. It is irresponsible to report on plans to reduce deficits without noting their likely impact on the economy.

The Post piece included the comment that Congressional Democrats looking to cut benefits are "saying 99 weeks of unemployment benefits may no longer be justified after four consecutive months of job growth." It would have been worth reminding readers that the rate of job growth over the last four months has only slightly outpaced the growth of the labor force. Projections from both the Congressional Budget Officie and the White House show that it will be more than 5 years before the unemployment rate returns to a more normal level.

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Politicians sometimes don't say what they really believe. Therefore it is very impressive that the Washington Post is able to determine their true feelings about the world. An article about the failure of the Senate to approve an extension of unemployment benefits attributed the impasse to: " a growing concern among Democrats that government spending is out of control."

It's remarkable that the Post is able to determine the true concerns of politicians -- especially when it is easy to show that these concerns bear no relationship to the underlying reality. The main reason that the government deficit has expanded in the last three years has been due to the economic downturn. If the deficit were smaller right now, then more workers would be unemployed and more of our children would have unemployed parents.

If the Post is right in its assessment of Democrats' concerns then it owes its readers a good piece on how congressional Democrats became so far removed from reality and how this affects their views of other policies.

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Yes, I'm reusing blogpost titles, but that is only because the papers appear to be repeating their bad reporting. The Labor Department releaased its data on weekly unemployment claims on Thursday and it was moderately bad news. New claims were at 460,000 for the week, with claims for the prior week revised upward by 3,000 to 374,000. This put the 4-week moving average at 456,500.

Generally claims have to be below 400,000 a week before we see job growth. The current level is consistent with we would expect to see in a relatively mild recession. The 4-week average only reached this level in the 2001 recession in the immediate aftermath of the September 11th attack even though the economy continued to shed jobs for another two years.

Usually newspapers devote all or part of an article to reporting on weekly unemployment insurance claims. However, that was not the case this week.

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The NYT headline told us: "Geithner sees consensus on finance reform." USA Today's headline was: "Geithner: US, Europe broadly agree on financial reform." The Post took a different perspective: "United States and Germany remain divided over financial regulation issues."

I'm inclined to agree with the Post. There is a push in Europe, led in part by Germany, for more extensive regulation of finance, including greater restrictions on hedge and private equity funds. It also seems likely that Europe will build up a reserve bailout fund in advance of a crisis, a provision that will likely be missing from the final bill coming out of Congress. And, Europe is very interested in taxes on financial speculation. The Obama administration is strongly opposed to any sort of financial transactions tax. Add a comment

The WSJ reported on Treasury Secretary Timothy Geithner's trip to Europe to push his agenda for financial reform and commented that:

"Mr. Geithner's European tour is reminiscent of the Asian financial crisis of a decade ago when many current Obama economic officials, including Mr. Geithner and White House economic adviser Lawrence Summers, traveled Asia doling out advice and worked behind the scenes at the International Monetary Fund to keep bailout cash flowing. Time magazine dubbed a trio of U.S. officials 'the Committee to Save the World.'"

It is worth noting that this prior effort at salvation did not turn out very well. In fact, it laid the groundwork for the current crisis. The IMF austerity plans were considered so painful that developing countries decided that they never wanted to be in a situation in which the IMF could impose the same sort of austerity plans on them. As a result, they began to accumulate massive amounts of reserves mostly in dollars. This reversed the normal flow of capital, with capital now going from poor countries to rich countries.

This led to the over-valuation of the dollar, which in turn caused the U.S. to run a massive trade deficit. The inflow of foreign capital, coupled with the trade deficit, also laid the basis for the continuation of the stock bubble in the 90s and the housing bubble in the next decade.The collapse of this bubble is the cause of the current economic crisis.

Hopefully, this effort at salvation will turn out better than the last one.

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With the deficit hawks in high gear, people are prepared to say anything in pursuit of the goal of deficit reduction. Remarkably, the NYT is apparently willing to print almost anything. Today the deficit cutting crusade is led by hedge fund manager David Einhorn. In a lengthy column Einhorn bemoans the fact that at least some people in the Obama administration are more concerned about getting people back to work than reducing the deficit.

Einhorn is a bit more knowledgeable about basic economics than many of those who worry that the United States will be unable to find investors to buy its debt. Since he has heard of the Federal Reserve Board, he recognizes that the actual concern should be inflation, not insolvency, since the Fed can always buy up government debt.

However, since one would have to struggle to find any evidence of inflationary pressures in recent economic data, Einhorn chooses to invent his own evidence:

"Government statistics are about the last place one should look to find inflation, as they are designed to not show much. Over the last 35 years the government has changed the way it calculates inflation several times. According to the Web site Shadow Government Statistics, using the pre-1980 method, the Consumer Price Index would be over 9 percent, compared with about 2 percent in the official statistics today."

The main source of the difference between the government statistics dismissed by Einhorn and the "Shadow Government Statistics" he cites is due to the inclusion of asset prices, like house prices, in the shadow statistics. There are good reasons for excluding asset prices from measures of inflation, but Einhorn's subsequent comments simply don't make sense.

He tells readers that. "lower official inflation means higher reported real G.D.P., higher reported real income and higher reported productivity." Actually, this is not true insofar as asset prices are the cause of understated inflation. Asset prices do not affect GDP or productivity measures. It is remarkable that Einhorn apparently does not know this.

Einhorn also complains that his assessment of the understatement of inflation:

"doesn’t even take into account inflation we ignore by using a basket of goods that don’t match the real-world cost of living. (For example, health care costs are one-sixth of G.D.P. but only one-sixteenth of the price index, and rising income and payroll taxes do not count as inflation at all.)"

Actually, the government has a wide variety of inflation measures, many of which do include the full weight of health care expenditures. They all show the same thing as the consumer price index: inflation is very low and falling. In short, Mr. Einhorn either has no clue about government data, or he is deliberately trying to mislead readers.

The NYT has been far more responsible in discussing the deficit than most other news outlets. It is understandable that it would want to open up its oped columns to those with differing views. However, it should not allow them to simply make things up as Mr. Einhorn has done here.

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The first sentence of a Washington Post article told readers that the Democratic leadership in Congress is scaling back plans to help the jobless and deficit ridden state and local governments because of: "fire from rank-and-file Democrats worried about the soaring national debt." It is not clear how the Post knows the real concerns of these politicians.

A politician's first priority is usually getting re-elected. Politicians who claim to be worried about the "soaring" national debt tend to get favorable mention from news outlets like the Washington Post and the many organizations financed in part or in whole by Wall Street investment banker Peter Peterson. It is not clear how the Post has determined that as a policy question, these rank and file Democrats are really more worried about the deficit than the jobs that will be lost as a result of their efforts at deficit reduction.

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Before its collapse, Lehamn Brothers played a series of games with its balance sheets to hide its true level of indebtedness. Apparently, the games continue. The WSJ has a nice piece showing that three major banks, Bank of America, Citigroup, and Deutsche Bank AG have all been sharply reducing their borrowings just before the end of the quarter so that their quarterly reports would not reflect the true extent of their leverage. Add a comment

Just a quick note to prevent some mistaken reporting. The Census Department reported a 14.8 percent jump in new home sales in April from March and a 47.8 percent increase from April of 2009. However, this increase in sales was accompanied by a 9.7 plunge in the median house price.

These numbers should not be seen as contradictory. The new home sales series measures contracts. The first-time home buyers tax credit expired at the end of April, which meant that people had to have a signed contract by the end of the month. This gave them incentive to rush out and buy homes. First-time buyers are likely to be concentrated in the low end of the market. This means that a surge in home sales coupled with a skewing to lower priced homes is exactly what we should have expected.

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