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 an excellent piece on how private equity funds (e.g. Peter Peterson's Blackstone Group) ripoff state and local governments by charging them large management fees. A standard arrangement will give the equity fund managers 2.0 percent of the funds under management and 20 percent of the profit. The article notes several cases where these investments have turned out poorly for pension funds and cites academic studies that show private equity funds, net of fees, provide on average no better return than broad stock indexes. Add a comment

When people talk about plans to "help" homeowners they must (yes, I said "must") ask two simple questions:

  1. Are the homeowners being "helped" paying less in mortgage and other housing costs than they would to rent a comparable unit: and
  2. Are the homeowners likely to end up with equity in their homes?

Neither of these questions get asked in this discussion of the merits of the Obama administration's plans to "help" homeowners.
This means that the NYT wasted readers time and killed trees for no good reason.

The point should be really straightforward. We help homeowners when we actually put money in their pocket. If homeowners are paying more in housing costs than they would to rent the same unit, then we have not put money in their pocket, we have put money in the banks' pockets. This is a policy to help banks, not homeowners.

That can be offset if there is reason to believe that the homeowner will eventually end up with equity in their home. Do we have any reason to believe that this will be the case? Well, that would depend on things like current ratios of sale price to rents and vacancy rates. These issues are not discussed anywhere in this piece or indeed in the overwhelming majority of pieces that discuss mechanisms to help homeowners.

In markets where prices are still bubble-inflated, giving people money to stay in their homes as owners is giving money to banks. In other markets, the owners could actually benefit. However, it is impossible to discuss the issue seriously without being able to distinguish between these situations.

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To those who pay attention to the economy, it's rather evident that the basic economic problems of the last two decades are the bubble driven growth of this era and the country's broken health care system. But NYT columnist David Brooks apparently never allows the actual state of the economy to affect his pronouncements about the economy and our moral state.

Therefore he describes the rise of personal debt from 55 percent of national income in 1960 to 133 percent in 2007 as being the result of the fact that: "life has become secure. This has eroded the fear of debt, private and public."

Let's try an alternative hypothesis. Wages have stagnated for tens of millions of workers. I guess no one Brooks hangs out with caught this development. In a context of stagnating wages, many families have been forced to take on debt to maintain living standards.

The other reason that borrowing has increased is that people spent money based on their stock and housing bubble wealth. Perhaps Brooks can't be blamed for not knowing about the stock and housing wealth effects, after all you would probably need an intro econ class to know about these concepts, but perhaps he could have found an econ major who could have explained that consumption increases when wealth increases. This means that when a housing bubble creates $8 trillion of housing bubble wealth, we would expect consumption and debt to increase. After all, rich people can afford to borrow more than poor people and the wealth created by the housing bubble made many families feel richer. The same was true of the $10 trillion in bubble wealth created at the peak of the stock bubble.

If Brooks wanted to discourage excessive debt, he might have called attention to these bubbles. But, Brooks would rather use his columns to call out the moral failings of the American people. Hence his comment that: "these days, voters want low taxes — about 19 percent of G.D.P. And they want high spending — over 25 percent of G.D.P. by 2020." He later warns us that this has on a path to be paying $900 billion a year in interest by 2020.

Yes, that $900 billion is really really scary. I don't know anyone who has $900 billion. Serious people would point out that the projected interest burden is a bit more than 4.0 percent of GDP, about the same as it was in the early 90s.

More importantly, there are not many people who have advocated spending 25 percent of GDP. They have expressed support for specific programs, like Social Security and Medicare. The latter costs way more in the United States than in any other country, not because we get better care, but because our health care system is hugely corrupt and inefficient. If we paid the same amount per person for health care as people in any other country then the deficits would quickly vanish.

Furthermore, even if fixing our health care system is hard to do politically because the system is so corrupt, we could achieve enormous savings by just allowing for freer trade in health care. But Brooks is such a hard core protectionist when it comes to the interests of the health care lobby that he cannot even conceive of openings to trade that would hurt their interests.

So, we instead get a lecture about the moral failings of the American people and the need for heroic actions to save them from themselves with carefully constructed commissions of experts. This is the best that American conservatism has to offer?

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I leave the assessment of this USA Today headline to readers' judgment. Add a comment

That is what the headline of an article on new economic data told readers. The headline is: "Unemployment and Inflation Rise in Europe." The data showed that unemployment increased from 9.9 percent in January to 10.0 percent in February.

This increase is not statistically significant. It is also the same unemployment rate that had originally been reported for November, but was subsequently revised down to 9.9 percent. In other words, the unemployment rate has been essentially unchanged for the last four months.

The rise in the inflation rate was an increase in year over year inflation from 0.9 percent in January to 1.6 percent in February. Since a major concern in most countries, including those in Europe, is deflation, this rise in the inflation rate would likely be viewed by most analysts as a positive development, although the monthly data is highly erratic so the number does not have much consequence.

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The Post reported on President Obama's lifting of the moratorium on offshore drilling and the response to the decision. While the article noted the reactions of politicians and presented polling data, it neglected to mention the fact that the oil that can potentially be obtained from these areas will have no noticeable impact on oil prices.

According to the Energy Information Agency, it will take two decades for the areas to reach peak production of 100,000 barrels a day, or 0.1 percent of world oil supply. In other words, the decision to open up drilling in these areas was entirely political. It had nothing to do with meeting the country's energy needs. This information probably would have been more useful to readers than accounts of the political reaction to President Obama's decision.

The NYT did a bit better in providing some context, but not much. It told readers that offshore sites may provide enough oil to supply the country for 3 years. It later noted that the Gulf Coast area that is being opened for drilling may have as much as 3.5 billion barrels of recoverable oil. This is less than 6 months worth of demand.

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