That’s the question that readers will inevitably ask after reading his column complaining that ideology is responsible for the government shutdown. Samuelson tells readers:
“A crucial difference between interest-group and ideological politics is what motivates people to join. For interest-group politics, the reason is simple — self-interest. People enjoy directly the fruits of their political involvement. Farmers get subsidies; Social Security recipients, checks. By contrast, the foot soldiers of ideological causes don’t usually enlist for tangible benefits for themselves but for a sense that they’re making the world a better place. Their reward is feeling good about themselves.
“I’ve called this “the politics of self-esteem” — and it profoundly alters politics. For starters, it suggests that you don’t just disagree with your adversaries; you also look down on them as morally inferior.”
Let’s see, does Robert Samuelson get direct tangible benefits when he harangues readers about the need to cut Social Security and Medicare because the country is projected to face a growing debt to GDP ratio in a decade or does this just make him feel good about himself?
That’s a tough one that we can leave folks to spend the day contemplating. But just to remind everyone of the facts of the situation, the projections, which incorporate little of the recent slowdown in health care costs (in other words, if the slowdown continues, we don’t have a problem) imply that the deficit will be somewhat larger in a decade than is consistent with a stable debt to GDP ratio.
If that projection proves accurate, there have been many times in the past in which the country has made far larger adjustments in its budget to deal with deficits (e.g. the Bush deficit reduction package in 1990 and the Clinton package in 1993), so it is hard to see why anyone would get so bent out of shape about the issue now. Since we are losing close to $1 trillion a year in lost output now and seeing millions of people have their lives ruined due to unemployment or underemployment, Samuelson’s deficit concerns seem a bit like obsessing over the need to repaint the kitchen when the house is on fire.
So, is he an ideologue?
That’s the question that readers will inevitably ask after reading his column complaining that ideology is responsible for the government shutdown. Samuelson tells readers:
“A crucial difference between interest-group and ideological politics is what motivates people to join. For interest-group politics, the reason is simple — self-interest. People enjoy directly the fruits of their political involvement. Farmers get subsidies; Social Security recipients, checks. By contrast, the foot soldiers of ideological causes don’t usually enlist for tangible benefits for themselves but for a sense that they’re making the world a better place. Their reward is feeling good about themselves.
“I’ve called this “the politics of self-esteem” — and it profoundly alters politics. For starters, it suggests that you don’t just disagree with your adversaries; you also look down on them as morally inferior.”
Let’s see, does Robert Samuelson get direct tangible benefits when he harangues readers about the need to cut Social Security and Medicare because the country is projected to face a growing debt to GDP ratio in a decade or does this just make him feel good about himself?
That’s a tough one that we can leave folks to spend the day contemplating. But just to remind everyone of the facts of the situation, the projections, which incorporate little of the recent slowdown in health care costs (in other words, if the slowdown continues, we don’t have a problem) imply that the deficit will be somewhat larger in a decade than is consistent with a stable debt to GDP ratio.
If that projection proves accurate, there have been many times in the past in which the country has made far larger adjustments in its budget to deal with deficits (e.g. the Bush deficit reduction package in 1990 and the Clinton package in 1993), so it is hard to see why anyone would get so bent out of shape about the issue now. Since we are losing close to $1 trillion a year in lost output now and seeing millions of people have their lives ruined due to unemployment or underemployment, Samuelson’s deficit concerns seem a bit like obsessing over the need to repaint the kitchen when the house is on fire.
So, is he an ideologue?
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There are a couple of other points worth making on the Sixty Minutes piece beyond what I said earlier. First, the numbers involved should be put in some context. The Sixty Minutes folks were warning us that if the Disability fund runs dry, “it’s your money and our money.” So we should know how much of our money is at stake.
According to the Social Security Trustees Report, spending on the disability program in 2013 will be $144.8 billion. If we go to CEPR’s incredibly spiffy responsible budget reporting calculator we find that this sum is equal to 4.2 percent of spending for the year.
Before you run off and spend this windfall, it is important to remember that the bulk of the people collecting disability would almost certainly even fit Senator Coburn’s definition of disabled. We have people with terminal cancer, people who were paralyzed in car crashes, and many other ailments that undoubtedly impose a real impediment to work.
Based on what we know from the University of Michigan study, it is unlikely that even 10 percent of those collecting disability would fit most people’s definition of bogus claims. But just to humor our disability bashing friends at Sixty Minutes, let’s say that it’s 20 percent. That means that we can knock down federal spending by 0.84 percent ($29.0 billion) if we just crack the whip. That’s not trivial, but not enough to allow too many big fiestas with the savings.
This brings up the second point. The bogus cases will never be so polite as to identify themselves as bogus cases. In order to weed out a higher percentage of the people who should not be getting benefits we will have to tighten restrictions and deny a large share of claims. This will mean denying more claims that should be approved.
In other words, we can undoubtedly whittle down the number of bogus claims that get approved, but the cost will be that more legitimate claims will be turned down as well. So the price of denying benefits to some people who might be making too big of a deal out of back pain may be to deny benefits to people who can barely walk due to a back injury.
If the judgment of the hearing officers were perfect we wouldn’t have this problem, but it’s not. The question that anyone who wants to go the crackdown route has to answer is how many genuinely disabled people are you prepared to deny benefits in order to weed out a bogus applicant? Unfortunately, Sixty Minutes did not ask this question.
There are a couple of other points worth making on the Sixty Minutes piece beyond what I said earlier. First, the numbers involved should be put in some context. The Sixty Minutes folks were warning us that if the Disability fund runs dry, “it’s your money and our money.” So we should know how much of our money is at stake.
According to the Social Security Trustees Report, spending on the disability program in 2013 will be $144.8 billion. If we go to CEPR’s incredibly spiffy responsible budget reporting calculator we find that this sum is equal to 4.2 percent of spending for the year.
Before you run off and spend this windfall, it is important to remember that the bulk of the people collecting disability would almost certainly even fit Senator Coburn’s definition of disabled. We have people with terminal cancer, people who were paralyzed in car crashes, and many other ailments that undoubtedly impose a real impediment to work.
Based on what we know from the University of Michigan study, it is unlikely that even 10 percent of those collecting disability would fit most people’s definition of bogus claims. But just to humor our disability bashing friends at Sixty Minutes, let’s say that it’s 20 percent. That means that we can knock down federal spending by 0.84 percent ($29.0 billion) if we just crack the whip. That’s not trivial, but not enough to allow too many big fiestas with the savings.
This brings up the second point. The bogus cases will never be so polite as to identify themselves as bogus cases. In order to weed out a higher percentage of the people who should not be getting benefits we will have to tighten restrictions and deny a large share of claims. This will mean denying more claims that should be approved.
In other words, we can undoubtedly whittle down the number of bogus claims that get approved, but the cost will be that more legitimate claims will be turned down as well. So the price of denying benefits to some people who might be making too big of a deal out of back pain may be to deny benefits to people who can barely walk due to a back injury.
If the judgment of the hearing officers were perfect we wouldn’t have this problem, but it’s not. The question that anyone who wants to go the crackdown route has to answer is how many genuinely disabled people are you prepared to deny benefits in order to weed out a bogus applicant? Unfortunately, Sixty Minutes did not ask this question.
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Catherine Rampell has a piece in the NYT Magazine about how the 1 percent made out like bandits in the wake of the collapse of the housing bubble (wrongly described as the financial crisis). Several of the claims or implications of the piece are not quite right. For example, the piece claims:
“Rents have risen at twice the pace of the overall cost-of-living index, partly because middle-class families can’t get the credit they need to buy.”
This is not true. There has been little difference in the rate of rental price increases and the overall increase in the cost of living since the start of the crisis as shown below. (The green line is overall inflation, the blue line owners equivalent rent. Owners’ equivalent rent is the appropriate comparison since it excludes utilities.)
This should not be surprising since the switch of people from homeowners to renters coinciding with conversion of many ownership units to rental properties, which is discussed in the piece. While the former increased the demand for rental units, the latter increased the supply.
A second misleading point is the idea that house prices have recovered to their bubble peaks. This is not in general true. In markets where there was not much of a bubble house prices have largely returned to their 2006 peaks in nominal terms, which would correspond to roughly a 15 percent decline in real terms. In areas where the bubble was centered, like Las Vegas and Phoenix, prices are still well below bubble peaks even in nominal terms.
Finally the piece cites work by David Autor about the loss of middle wage jobs. This was not actually happening in the years prior to the downturn. While it is likely true in the years since the downturn, this almost certainly a standard cyclical story. High unemployment always takes a toll on middle and lower wage workers. Since people in Washington can’t talk about anything that will get us back to full employment (e.g. stimulus, a lower valued dollar, or work sharing), we are likely to continue to see workers in the middle and below take a big hit. But this is a policy decision, not the result of natural economic trends as is explained in the forthcoming book by Jared Bernstein and me (Returning to Full Employment: A Better Bargain for Working People, coming soon to a website near you.)
Catherine Rampell has a piece in the NYT Magazine about how the 1 percent made out like bandits in the wake of the collapse of the housing bubble (wrongly described as the financial crisis). Several of the claims or implications of the piece are not quite right. For example, the piece claims:
“Rents have risen at twice the pace of the overall cost-of-living index, partly because middle-class families can’t get the credit they need to buy.”
This is not true. There has been little difference in the rate of rental price increases and the overall increase in the cost of living since the start of the crisis as shown below. (The green line is overall inflation, the blue line owners equivalent rent. Owners’ equivalent rent is the appropriate comparison since it excludes utilities.)
This should not be surprising since the switch of people from homeowners to renters coinciding with conversion of many ownership units to rental properties, which is discussed in the piece. While the former increased the demand for rental units, the latter increased the supply.
A second misleading point is the idea that house prices have recovered to their bubble peaks. This is not in general true. In markets where there was not much of a bubble house prices have largely returned to their 2006 peaks in nominal terms, which would correspond to roughly a 15 percent decline in real terms. In areas where the bubble was centered, like Las Vegas and Phoenix, prices are still well below bubble peaks even in nominal terms.
Finally the piece cites work by David Autor about the loss of middle wage jobs. This was not actually happening in the years prior to the downturn. While it is likely true in the years since the downturn, this almost certainly a standard cyclical story. High unemployment always takes a toll on middle and lower wage workers. Since people in Washington can’t talk about anything that will get us back to full employment (e.g. stimulus, a lower valued dollar, or work sharing), we are likely to continue to see workers in the middle and below take a big hit. But this is a policy decision, not the result of natural economic trends as is explained in the forthcoming book by Jared Bernstein and me (Returning to Full Employment: A Better Bargain for Working People, coming soon to a website near you.)
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That’s what he told readers in an NYT column today. Paulson wrote:
“China’s economic output expanded nearly six-fold between 2002 and 2012, from $1.5 trillion to $8.3 trillion.”
It appears that Paulson took China’s GDP in nominal dollars. This distorts its actual growth both because more inflation in the United States would imply more rapid growth in China by this measure and also because much of the rise was simply an increase in the value of the yuan against the dollar.
The more standard measure would be inflation adjusted growth measured in China’s currency. This still comes to an extraordinary 10.7 percent annual rate, but that’s hugely different from the 18.7 percent rate implied by Paulson’s numbers.
This raises two disturbing questions. Is Paulson really that ignorant of both China’s economy and world growth data more generally? No one who has been through an intro econ class should ever mistake real and nominal growth like this. By Paulson’s measure, countries throughout the world experienced enormous growth in the 1970s because of inflation in the United States. This confusion is kind of scary for a person who both ran the country largest investment bank (Goldman Sachs) and was Treasury Secretary as the bursting of the housing bubble gave the country the worst downturn since the Great Depression.
The other question is whether the NYT suspends its fact-checking for prominent people like Henry Paulson. I have written columns for the NYT. I was asked to document every specific claim in my piece. That is appropriate and good journalistic practice for a newspaper that wants to ensure that the arguments it presents on its opinion page are based in reality. It is hard to believe that any fact-checker would have accepted Paulson’s claims about the size of China’s economy increasing six-fold from 2002-2012.
That’s what he told readers in an NYT column today. Paulson wrote:
“China’s economic output expanded nearly six-fold between 2002 and 2012, from $1.5 trillion to $8.3 trillion.”
It appears that Paulson took China’s GDP in nominal dollars. This distorts its actual growth both because more inflation in the United States would imply more rapid growth in China by this measure and also because much of the rise was simply an increase in the value of the yuan against the dollar.
The more standard measure would be inflation adjusted growth measured in China’s currency. This still comes to an extraordinary 10.7 percent annual rate, but that’s hugely different from the 18.7 percent rate implied by Paulson’s numbers.
This raises two disturbing questions. Is Paulson really that ignorant of both China’s economy and world growth data more generally? No one who has been through an intro econ class should ever mistake real and nominal growth like this. By Paulson’s measure, countries throughout the world experienced enormous growth in the 1970s because of inflation in the United States. This confusion is kind of scary for a person who both ran the country largest investment bank (Goldman Sachs) and was Treasury Secretary as the bursting of the housing bubble gave the country the worst downturn since the Great Depression.
The other question is whether the NYT suspends its fact-checking for prominent people like Henry Paulson. I have written columns for the NYT. I was asked to document every specific claim in my piece. That is appropriate and good journalistic practice for a newspaper that wants to ensure that the arguments it presents on its opinion page are based in reality. It is hard to believe that any fact-checker would have accepted Paulson’s claims about the size of China’s economy increasing six-fold from 2002-2012.
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The Washington Post told readers that the stock of Potbelly, a fast food restaurant chain, rose by 120 percent on the day of its initial public offering (IPO). This rise raises several interesting questions that the piece does not mention.
First, if the extraordinary rise in price is in fact justified by the fundamentals of the market, then the underwriters badly muffed their job. They set a price for the stock that was far too low, costing the company large amounts of money. They should have made their initial offering at a much higher price.
In that case, a main theme of the piece should be identifying the underwriters and asking them how they could have been so far from the mark in assessing the company’s market value. After all, these people are paid big salaries to know things like this. Someone failed badly in their job if the run-up is justified by the fundamentals.
The alternative scenario is that the run-up is not justified by the fundamentals and this just another outbreak of irrational exuberance. If that’s the case, the people who bid up the stock price will end up as big losers. In that case readers might be interesting in finding out what sort of investors were throwing their money away.
In the event that the investors were rich hedge fund types then this would just be a redistribution within the 1 percent. But if the investors were pension funds (either public funds or private funds guaranteed by the taxpayers), then overpaying for Potbelly stock would imply redistribution from the bulk of the population to the insiders who managed to dump their stock near yesterday’s high.
Unfortunately the Post, like other news outlets, covered the Potbelly IPO like a sporting event. It treated the stock price as though it is money from heaven rather than a claim on the economy’s resources.
The Washington Post told readers that the stock of Potbelly, a fast food restaurant chain, rose by 120 percent on the day of its initial public offering (IPO). This rise raises several interesting questions that the piece does not mention.
First, if the extraordinary rise in price is in fact justified by the fundamentals of the market, then the underwriters badly muffed their job. They set a price for the stock that was far too low, costing the company large amounts of money. They should have made their initial offering at a much higher price.
In that case, a main theme of the piece should be identifying the underwriters and asking them how they could have been so far from the mark in assessing the company’s market value. After all, these people are paid big salaries to know things like this. Someone failed badly in their job if the run-up is justified by the fundamentals.
The alternative scenario is that the run-up is not justified by the fundamentals and this just another outbreak of irrational exuberance. If that’s the case, the people who bid up the stock price will end up as big losers. In that case readers might be interesting in finding out what sort of investors were throwing their money away.
In the event that the investors were rich hedge fund types then this would just be a redistribution within the 1 percent. But if the investors were pension funds (either public funds or private funds guaranteed by the taxpayers), then overpaying for Potbelly stock would imply redistribution from the bulk of the population to the insiders who managed to dump their stock near yesterday’s high.
Unfortunately the Post, like other news outlets, covered the Potbelly IPO like a sporting event. It treated the stock price as though it is money from heaven rather than a claim on the economy’s resources.
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Allison Shrager’s Reuter’s column on the problems facing public pensions badly misled readers. It noted the pensions reported funding ratios and then told readers:
“But these estimates rely on the assumption that pension assets will earn at least 7 percent to 8 percent each and every year.”
This is absolutely not true. The estimates only assume an average return in the range of 7-8 percent. If returns fall below this for a year or two, to stay on target the fund will have to achieve higher returns in future years. There is little risk that even a seriously underfunded pension will be forced to sell assets (i.e. stock) at a major loss, since it will almost certainly have plenty of liquid assets that can meet current obligations.
In fact, given the price to earnings in the stock market at present, the return assumption being made by pensions are very reasonable. It would be difficult to construct return projections that are much lower that would still be consistent with the economic growth projections from the Congressional Budget Office, Office of Management and Budget and other public and private forecasters.
This column overlooked what is probably the biggest cause of the pension shortfalls facing state and local governments. In the years of the stock bubble, when price to trend earnings ratios in the stock market rose above 30, pensions still assumed that it would be possible to get 10 percent nominal returns on stock. While some of us did try to point out that such returns would be impossible, those in positions of responsibility did not want to be bothered by arithmetic.
In particular the bond rating agencies, Moody’s and Standard and Poor’s, both gave a green light to an assumption that could be shown absurd by anyone familiar with third grade arithmetic. This astounding failure had two major consequences. Many pension funds granted extra benefits based on these assumptions. This was the case in Detroit as was documented in an article last month.
The other consequence was that many state and local governments grossly under-contributed to their pensions in the stock bubble years because the faulty accounting of the bond rating agencies implied that little or no contribution was necessary. When the stock bubble burst in 2000-2002, the pensions suddenly had big shortfalls, but because governments had not budgeted for larger contributions and the recession was already putting strains on budgets, many neglected to make the required contributions. This pattern became a ritual in places like Chicago, where the city failed to make its required contributions for a decade.
This failure of the regulators, the accountants, and the economists must really be featured front and center in any discussion of the current pension situation. Unfortunately, the same people who are responsible for the problems still dominate the public debate on pension policy. As a result, this simple history rarely appears in public discussions of pension policy.
Allison Shrager’s Reuter’s column on the problems facing public pensions badly misled readers. It noted the pensions reported funding ratios and then told readers:
“But these estimates rely on the assumption that pension assets will earn at least 7 percent to 8 percent each and every year.”
This is absolutely not true. The estimates only assume an average return in the range of 7-8 percent. If returns fall below this for a year or two, to stay on target the fund will have to achieve higher returns in future years. There is little risk that even a seriously underfunded pension will be forced to sell assets (i.e. stock) at a major loss, since it will almost certainly have plenty of liquid assets that can meet current obligations.
In fact, given the price to earnings in the stock market at present, the return assumption being made by pensions are very reasonable. It would be difficult to construct return projections that are much lower that would still be consistent with the economic growth projections from the Congressional Budget Office, Office of Management and Budget and other public and private forecasters.
This column overlooked what is probably the biggest cause of the pension shortfalls facing state and local governments. In the years of the stock bubble, when price to trend earnings ratios in the stock market rose above 30, pensions still assumed that it would be possible to get 10 percent nominal returns on stock. While some of us did try to point out that such returns would be impossible, those in positions of responsibility did not want to be bothered by arithmetic.
In particular the bond rating agencies, Moody’s and Standard and Poor’s, both gave a green light to an assumption that could be shown absurd by anyone familiar with third grade arithmetic. This astounding failure had two major consequences. Many pension funds granted extra benefits based on these assumptions. This was the case in Detroit as was documented in an article last month.
The other consequence was that many state and local governments grossly under-contributed to their pensions in the stock bubble years because the faulty accounting of the bond rating agencies implied that little or no contribution was necessary. When the stock bubble burst in 2000-2002, the pensions suddenly had big shortfalls, but because governments had not budgeted for larger contributions and the recession was already putting strains on budgets, many neglected to make the required contributions. This pattern became a ritual in places like Chicago, where the city failed to make its required contributions for a decade.
This failure of the regulators, the accountants, and the economists must really be featured front and center in any discussion of the current pension situation. Unfortunately, the same people who are responsible for the problems still dominate the public debate on pension policy. As a result, this simple history rarely appears in public discussions of pension policy.
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Give the NYT and the rest of the media a really big “F” for their coverage of the medical device tax. Next to no one knows where it came from and why it was included in the Affordable Care Act (ACA). That means the media have done a terrible job, just as we might think school teachers aren’t doing a very good job educating students if they graduate high school without being able to read.
If you read the NYT cover to cover every day for the last year, you would probably think that the medical device tax was simply a way to dig up an extra $2-3 billion a year to cover the cost of the ACA. That of course is what General Electric and the other medical device manufacturers want you to believe.
In fact, the medical device tax is really a way to take back a windfall that General Electric and other manufacturers expect to get from the ACA. The story is that medical devices, like prescription drugs, are generally relatively cheap to produce. They involve big research costs that their manufacturers expect to recover by selling their devices at large mark-ups.
To take a simple example, suppose General Electric spends $500 million developing a new scanner. General Electric sells the scanners for $1.1 million. Since it costs them $100,000 to manufacture them, they can pocket $1 million for each scanner they sell. Before the passage of the ACA, General Electric had expected to sell 1000 of these scanners, which would net them a total of $1 billion over their production costs. This allows General Electric to recover their $500 million in development costs and pocket $500 million in profit.
However the ACA changes this picture by increasing the demand for scanners, as more people have access to health care. As a result of the ACA, General Electric now expects to sell ten percent more scanners or 1100. The additional 100 scanners will mean an additional $100 million in profits in excess of what General Electric had anticipated. (Remember, its development costs have not changed, this is pure profit.)
General Electric would of course be very happy with situation, just as it is any time the government opts to give the company money. The medical device tax, which is set at 2.3 percent of sales, is an effort to recoup the unexpected windfall that General Electric and other medical device makers would otherwise receive from the ACA.
The fact that almost no one understands the origins of the medical device tax demonstrates an astounding failure on the part of the nation’s media. If budget reporters were school teachers, many of them would be looking for new jobs rights now.
Give the NYT and the rest of the media a really big “F” for their coverage of the medical device tax. Next to no one knows where it came from and why it was included in the Affordable Care Act (ACA). That means the media have done a terrible job, just as we might think school teachers aren’t doing a very good job educating students if they graduate high school without being able to read.
If you read the NYT cover to cover every day for the last year, you would probably think that the medical device tax was simply a way to dig up an extra $2-3 billion a year to cover the cost of the ACA. That of course is what General Electric and the other medical device manufacturers want you to believe.
In fact, the medical device tax is really a way to take back a windfall that General Electric and other manufacturers expect to get from the ACA. The story is that medical devices, like prescription drugs, are generally relatively cheap to produce. They involve big research costs that their manufacturers expect to recover by selling their devices at large mark-ups.
To take a simple example, suppose General Electric spends $500 million developing a new scanner. General Electric sells the scanners for $1.1 million. Since it costs them $100,000 to manufacture them, they can pocket $1 million for each scanner they sell. Before the passage of the ACA, General Electric had expected to sell 1000 of these scanners, which would net them a total of $1 billion over their production costs. This allows General Electric to recover their $500 million in development costs and pocket $500 million in profit.
However the ACA changes this picture by increasing the demand for scanners, as more people have access to health care. As a result of the ACA, General Electric now expects to sell ten percent more scanners or 1100. The additional 100 scanners will mean an additional $100 million in profits in excess of what General Electric had anticipated. (Remember, its development costs have not changed, this is pure profit.)
General Electric would of course be very happy with situation, just as it is any time the government opts to give the company money. The medical device tax, which is set at 2.3 percent of sales, is an effort to recoup the unexpected windfall that General Electric and other medical device makers would otherwise receive from the ACA.
The fact that almost no one understands the origins of the medical device tax demonstrates an astounding failure on the part of the nation’s media. If budget reporters were school teachers, many of them would be looking for new jobs rights now.
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The New York Times committed an astounding blunder when it took at face value a release from the Obama Treasury Department showing how the 2011 debt ceiling standoff hurt the economy. The three pieces of evidence for the standoff imposing a large price is a plunge in the consumer confidence index, a sharp fall in the stock market, and a big rise in an index measuring investors’ expectations of the volatility of the S&P 500.
These measures in fact tell us little about the economy. None of them is a direct measure of economic activity. Any analysis of the actual components of private sector demand (investment and consumption) would show little evidence of any falloff during the period leading up to the crisis.
Instead, these are all measures of perceptions about the future. The consumer confidence measure is especially misleading. It actually has two components, a current conditions index and a future expectations index. The current conditions index is fairly closely correlated with current consumption. The future expectations index is far more volatile and has almost no correlation with current consumption. Most of the plunge in the consumer confidence index during the crisis was in the expectations index.
The other huge problem with the NYT charts is that they actually ignore the main factor moving these indexes. Italy joined the list of euro crisis countries in the week where the debt ceiling crisis hits its climax. Since a default by Italy could have led to a collapse of the euro, this created enormous fear in financial markets. That caused world stock markets to plunge.
Interestingly, the price of U.S. Treasury bonds soared and interest rates plummeted. (Why doesn’t the NYT have a chart showing interest rates on 10-year Treasury bonds for this period?) That is the direct opposite of what we would expect to happen if investors were losing confidence that the U.S. government would pay its debt.
NYT reporters should learn that the Obama administration is not a public information service. It has an agenda. That means that its releases should be scrutinized carefully and not just reprinted without comment. Reporters have the time to evaluate releases from the administration and determine if they are accurate and complete. Readers do not.
The New York Times committed an astounding blunder when it took at face value a release from the Obama Treasury Department showing how the 2011 debt ceiling standoff hurt the economy. The three pieces of evidence for the standoff imposing a large price is a plunge in the consumer confidence index, a sharp fall in the stock market, and a big rise in an index measuring investors’ expectations of the volatility of the S&P 500.
These measures in fact tell us little about the economy. None of them is a direct measure of economic activity. Any analysis of the actual components of private sector demand (investment and consumption) would show little evidence of any falloff during the period leading up to the crisis.
Instead, these are all measures of perceptions about the future. The consumer confidence measure is especially misleading. It actually has two components, a current conditions index and a future expectations index. The current conditions index is fairly closely correlated with current consumption. The future expectations index is far more volatile and has almost no correlation with current consumption. Most of the plunge in the consumer confidence index during the crisis was in the expectations index.
The other huge problem with the NYT charts is that they actually ignore the main factor moving these indexes. Italy joined the list of euro crisis countries in the week where the debt ceiling crisis hits its climax. Since a default by Italy could have led to a collapse of the euro, this created enormous fear in financial markets. That caused world stock markets to plunge.
Interestingly, the price of U.S. Treasury bonds soared and interest rates plummeted. (Why doesn’t the NYT have a chart showing interest rates on 10-year Treasury bonds for this period?) That is the direct opposite of what we would expect to happen if investors were losing confidence that the U.S. government would pay its debt.
NYT reporters should learn that the Obama administration is not a public information service. It has an agenda. That means that its releases should be scrutinized carefully and not just reprinted without comment. Reporters have the time to evaluate releases from the administration and determine if they are accurate and complete. Readers do not.
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The Washington Post apparently finds it impossible to write an article that mentions Social Security without pushing its line about cutting Social Security. In a front page article on the budget standoff the Post told readers:
“Both sides agree that a potential deal could involve replacing deep budget cuts known as the sequester with cost-saving adjustments to Social Security and Medicare, such as using a less generous measure of inflation to calculate cost-of-living changes.”
The “cost-saving adjustments” to Social Security in normal English are known as “cuts.” When a worker gets their pay reduced by 10 percent, it would usually be referred to as a pay “cut,” not a “cost-saving adjustment” to the worker’s salary.
In the same vein, the issue is the size of cost-of-living increases. The only possible cost-of-living changes for Social Security are increases. The law only allows for increases. (We haven’t seen a year over year decline in prices since the program’s inception in any case.) The issue is that beneficiaries will see smaller cost-of-living increases under this plan.
The article also commits two other noteworthy errors. It uncritically presents the misleading material from the White House implying that the 2011 debt standoff had serious negative effects on the economy. The White House material ignores the euro crisis which hit a peak at this time, creating the real possibility of the breakup of the euro.
The article also discusses the medical device tax without explaining that its purpose is to take away a windfall that the Affordable Care Act is giving to the medical device industry.
The Washington Post apparently finds it impossible to write an article that mentions Social Security without pushing its line about cutting Social Security. In a front page article on the budget standoff the Post told readers:
“Both sides agree that a potential deal could involve replacing deep budget cuts known as the sequester with cost-saving adjustments to Social Security and Medicare, such as using a less generous measure of inflation to calculate cost-of-living changes.”
The “cost-saving adjustments” to Social Security in normal English are known as “cuts.” When a worker gets their pay reduced by 10 percent, it would usually be referred to as a pay “cut,” not a “cost-saving adjustment” to the worker’s salary.
In the same vein, the issue is the size of cost-of-living increases. The only possible cost-of-living changes for Social Security are increases. The law only allows for increases. (We haven’t seen a year over year decline in prices since the program’s inception in any case.) The issue is that beneficiaries will see smaller cost-of-living increases under this plan.
The article also commits two other noteworthy errors. It uncritically presents the misleading material from the White House implying that the 2011 debt standoff had serious negative effects on the economy. The White House material ignores the euro crisis which hit a peak at this time, creating the real possibility of the breakup of the euro.
The article also discusses the medical device tax without explaining that its purpose is to take away a windfall that the Affordable Care Act is giving to the medical device industry.
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