If Ruth Marcus did not exist someone would have to invent her. She is the living embodiment of an ill-informed Washington pundit who desperately wants to meld the world to fit her preconceptions. (Okay, her colleagues at the Post, Fred Hiatt and David Broder give her stiff competition.)
Anyhow, the theme today is that Obama failed to recognize that his shellacking was from too much big government. First, it is important to recognize that there is a large body of research that shows that President Obama’s shellacking was overwhelmingly the result of 9.6 percent unemployment, coupled with the fact that the Democrats held many marginal districts as a result of their gains in the last two elections. Models that incorporate only these variables predict most of the Democratic losses last week.
In other words, if President Obama could not do more to bring the unemployment rate down, then he should have expected his shellacking. Those opposed to more stimulus (like the Post crew) in effect wanted to see the Dems trounced since it was an entirely predictable outcome of the policy.
But, let’s get to the big government story. Ms. Marcus tells us that the public is upset about big government interventions in the economy, like President Obama’s health care plan and cap and trade.
Let’s consider each of these in turn. Has the public seen President Obama’s health care plan? That doesn’t seem likely, since very few of the provisions have been implemented thus far. What the public knows of the health care plan is what the media has reported. This has included stories of “death panels,” government takeover of the health care industry, and massive cuts in Medicare.
These charges have the common characteristic of not being true. (I will acknowledge that the cuts in Medicare are a real possibility, but please note that this would mean smaller government, not bigger government.) Polls bear out the fact the public is extremely ill-informed about the health care plan. We can blame media outlets like the Washington Post for this failure. (This is the principle, strongly endorsed by the Post, that if the students don’t learn, then it is the teacher’s fault.)
So, how is over-reaching and excessive government intervention the problem if the public doesn’t really have a clue about the health care reform? Basically, the Republicans made things up and they stuck in the minds of millions of voters. That is the story.
Describing cap and trade or related measures to limit greenhouse gas emissions (GHG) as big government intervention is also peculiar. Are the zoning restrictions that prevent me from building a slaughterhouse across the street from Bill Gates’ house “big government?” I suspect that most people would say no. The issue here is of protecting property rights and making people accountable for externalities.
The externalities from GHG are destroying property and causing millions of people to die from such things as floods in Bangladesh and Pakistan and droughts in Sub-Saharan Africa. We can call rules designed to prevent this harm “big government,” but that is just name-calling. In reality, this is just about limiting externalities in the same way as zoning ordinances do. But hey, that wouldn’t fit the Post’s story.
If Ruth Marcus did not exist someone would have to invent her. She is the living embodiment of an ill-informed Washington pundit who desperately wants to meld the world to fit her preconceptions. (Okay, her colleagues at the Post, Fred Hiatt and David Broder give her stiff competition.)
Anyhow, the theme today is that Obama failed to recognize that his shellacking was from too much big government. First, it is important to recognize that there is a large body of research that shows that President Obama’s shellacking was overwhelmingly the result of 9.6 percent unemployment, coupled with the fact that the Democrats held many marginal districts as a result of their gains in the last two elections. Models that incorporate only these variables predict most of the Democratic losses last week.
In other words, if President Obama could not do more to bring the unemployment rate down, then he should have expected his shellacking. Those opposed to more stimulus (like the Post crew) in effect wanted to see the Dems trounced since it was an entirely predictable outcome of the policy.
But, let’s get to the big government story. Ms. Marcus tells us that the public is upset about big government interventions in the economy, like President Obama’s health care plan and cap and trade.
Let’s consider each of these in turn. Has the public seen President Obama’s health care plan? That doesn’t seem likely, since very few of the provisions have been implemented thus far. What the public knows of the health care plan is what the media has reported. This has included stories of “death panels,” government takeover of the health care industry, and massive cuts in Medicare.
These charges have the common characteristic of not being true. (I will acknowledge that the cuts in Medicare are a real possibility, but please note that this would mean smaller government, not bigger government.) Polls bear out the fact the public is extremely ill-informed about the health care plan. We can blame media outlets like the Washington Post for this failure. (This is the principle, strongly endorsed by the Post, that if the students don’t learn, then it is the teacher’s fault.)
So, how is over-reaching and excessive government intervention the problem if the public doesn’t really have a clue about the health care reform? Basically, the Republicans made things up and they stuck in the minds of millions of voters. That is the story.
Describing cap and trade or related measures to limit greenhouse gas emissions (GHG) as big government intervention is also peculiar. Are the zoning restrictions that prevent me from building a slaughterhouse across the street from Bill Gates’ house “big government?” I suspect that most people would say no. The issue here is of protecting property rights and making people accountable for externalities.
The externalities from GHG are destroying property and causing millions of people to die from such things as floods in Bangladesh and Pakistan and droughts in Sub-Saharan Africa. We can call rules designed to prevent this harm “big government,” but that is just name-calling. In reality, this is just about limiting externalities in the same way as zoning ordinances do. But hey, that wouldn’t fit the Post’s story.
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One would hope that reporters who cover economic issues for the Washington Post know a little economics. Unfortunately, this does not seem to be the case. Therefore, BTP will provide a free economics tutorial for the Post’s economic reporters.
The Post told readers today that:
“world leaders share the overall aims of bringing trade flows into better balance and curtailing recent clashes over currency values.”
The whole piece in fact shows the opposite. In a system of floating exchange rates the mechanism for correcting trade imbalances is a change in currency values. Countries with trade surpluses are supposed to see the value of their currency rise. Countries with trade deficits are supposed to see the value of their currency fall.
When a country’s currency falls in value, imports become more expensive meaning that they will import less. Its exports become cheaper for people in other countries, causing foreigners to buy more of their exports. This will reduce its trade deficit. The opposite holds for a country’s whose currency rises in value.
This is really simple. If you want to see trade imbalances corrected, then you want to see the value of the currency fall for countries with large deficits like the United States. This is just like if you want the school fire put out, you want the firefighters to spray water on it.
On the other hand, if you don’t want the firefighters to use water, then you really don’t want the fire extinguished. In the same vein, all the officials cited in this article who complain about the decline in the value of the dollar obviously do not want the trade imbalances corrected. It is that simple, at least for folks who learned intro econ.
There is another interesting sidebar for the economically literate. The article tells us:
“Some developing countries took aim at the Fed move in part because it could weaken the dollar, making their own currencies relatively more expensive, hurting their exports and fueling inflation.”
This is a non sequitur. If the dollar falls in value, then imports from the United States will be cheaper for developing countries. This will lower inflation, other things equal. In addition, reduced exports from these countries will also reduce domestic demand and employment, which will also put downward pressure on inflation. If developing countries actually make the claims attributed to them in this article then the news is that their officials have no better grasp of economics than a Washington Post reporter.
One would hope that reporters who cover economic issues for the Washington Post know a little economics. Unfortunately, this does not seem to be the case. Therefore, BTP will provide a free economics tutorial for the Post’s economic reporters.
The Post told readers today that:
“world leaders share the overall aims of bringing trade flows into better balance and curtailing recent clashes over currency values.”
The whole piece in fact shows the opposite. In a system of floating exchange rates the mechanism for correcting trade imbalances is a change in currency values. Countries with trade surpluses are supposed to see the value of their currency rise. Countries with trade deficits are supposed to see the value of their currency fall.
When a country’s currency falls in value, imports become more expensive meaning that they will import less. Its exports become cheaper for people in other countries, causing foreigners to buy more of their exports. This will reduce its trade deficit. The opposite holds for a country’s whose currency rises in value.
This is really simple. If you want to see trade imbalances corrected, then you want to see the value of the currency fall for countries with large deficits like the United States. This is just like if you want the school fire put out, you want the firefighters to spray water on it.
On the other hand, if you don’t want the firefighters to use water, then you really don’t want the fire extinguished. In the same vein, all the officials cited in this article who complain about the decline in the value of the dollar obviously do not want the trade imbalances corrected. It is that simple, at least for folks who learned intro econ.
There is another interesting sidebar for the economically literate. The article tells us:
“Some developing countries took aim at the Fed move in part because it could weaken the dollar, making their own currencies relatively more expensive, hurting their exports and fueling inflation.”
This is a non sequitur. If the dollar falls in value, then imports from the United States will be cheaper for developing countries. This will lower inflation, other things equal. In addition, reduced exports from these countries will also reduce domestic demand and employment, which will also put downward pressure on inflation. If developing countries actually make the claims attributed to them in this article then the news is that their officials have no better grasp of economics than a Washington Post reporter.
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Don’t turn up the heat, it’s too cold! That seems to be the message from the rest of the world about the decline in the dollar that might result from the latest round of quantitative easing QE by the Fed.
The NYT told readers that:
“The Fed’s action, by lowering American interest rates, can also cause money to flood into other countries as investors seekhigher [sic] returns — which can threaten to overheat those countries’ economies.”
Okay, here we have a statement from the NYT that QE is bad because it will lower interest rates in other countries and cause their economies to grow more rapidly. But, elsewhere we are told that the problem with QE is that it will lower the dollar which will make U.S. goods more competitive internationally. This will reduce the exports of developing countries and slow their growth.
So, other countries are mad about QE because it can both cause their economy to overheat and also because it will slow growth. Let’s see, QE will make these countries both grow too fast and too slow. Now that’s a really bad policy.
Don’t turn up the heat, it’s too cold! That seems to be the message from the rest of the world about the decline in the dollar that might result from the latest round of quantitative easing QE by the Fed.
The NYT told readers that:
“The Fed’s action, by lowering American interest rates, can also cause money to flood into other countries as investors seekhigher [sic] returns — which can threaten to overheat those countries’ economies.”
Okay, here we have a statement from the NYT that QE is bad because it will lower interest rates in other countries and cause their economies to grow more rapidly. But, elsewhere we are told that the problem with QE is that it will lower the dollar which will make U.S. goods more competitive internationally. This will reduce the exports of developing countries and slow their growth.
So, other countries are mad about QE because it can both cause their economy to overheat and also because it will slow growth. Let’s see, QE will make these countries both grow too fast and too slow. Now that’s a really bad policy.
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Would a prominent public figure be allowed on NPR to defame a major U.S. corporation without challenge? For example, could a cabinet official assert that Microsoft is the main cause of global warming, with no evidence whatsoever to support this position, and not have anyone point out that this charge lacks merit? My guess is no.
Which raises the question of why Colorado Senator Michael Bennet was allowed to tell listeners on Morning Edition that if something is not done soon there will be no Social Security benefits for people his age (45). There are no, as in zero, nada, none, projections from any source that show Social Security will not be able to pay Mr. Bennet and his age cohort larger benefits (adjusted for inflation) than what retirees are receiving today.
That’s right, you can look at projections from the Congressional Budget Office, from the Social Security trustees and any number of private sources and every last one shows that in any remotely plausible scenario Social Security will be paying benefits that are higher than what current retirees receive long after Senator Bennet passes into history.
This means that either Mr. Bennet is clueless about the financial status of the country’s most important social program or he deliberately misled listeners. This issue would have been pursued by a serious news organization, instead of just passing along Mr. Bennet’s falsehood unquestioningly to unsuspecting listeners.
Would a prominent public figure be allowed on NPR to defame a major U.S. corporation without challenge? For example, could a cabinet official assert that Microsoft is the main cause of global warming, with no evidence whatsoever to support this position, and not have anyone point out that this charge lacks merit? My guess is no.
Which raises the question of why Colorado Senator Michael Bennet was allowed to tell listeners on Morning Edition that if something is not done soon there will be no Social Security benefits for people his age (45). There are no, as in zero, nada, none, projections from any source that show Social Security will not be able to pay Mr. Bennet and his age cohort larger benefits (adjusted for inflation) than what retirees are receiving today.
That’s right, you can look at projections from the Congressional Budget Office, from the Social Security trustees and any number of private sources and every last one shows that in any remotely plausible scenario Social Security will be paying benefits that are higher than what current retirees receive long after Senator Bennet passes into history.
This means that either Mr. Bennet is clueless about the financial status of the country’s most important social program or he deliberately misled listeners. This issue would have been pursued by a serious news organization, instead of just passing along Mr. Bennet’s falsehood unquestioningly to unsuspecting listeners.
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This should have been the headline of an article in which Germany’s finance minister both complained about the United States credit-led model of growth and the decline in the value of the dollar. A falling dollar is the mechanism through which the United States would get off its credit-led model of growth. It will make imports more expensive in the United States, leading us to buy fewer imports. It will also make our exports cheaper, leading us to increase exports. This will reduce the U.S. trade deficit and therefore its foreign borrowing.
Complaining about both the credit-led model of growth and then complaining about the decline in the currency is like complaining that the room is too hot and then complaining when someone turns on the air conditioner. Germany’s finance minister apparently does not understand economics, which should have been the main point of this article.
This should have been the headline of an article in which Germany’s finance minister both complained about the United States credit-led model of growth and the decline in the value of the dollar. A falling dollar is the mechanism through which the United States would get off its credit-led model of growth. It will make imports more expensive in the United States, leading us to buy fewer imports. It will also make our exports cheaper, leading us to increase exports. This will reduce the U.S. trade deficit and therefore its foreign borrowing.
Complaining about both the credit-led model of growth and then complaining about the decline in the currency is like complaining that the room is too hot and then complaining when someone turns on the air conditioner. Germany’s finance minister apparently does not understand economics, which should have been the main point of this article.
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The NYT repeatedly refers to the credibility of the Federal Reserve Board. This is an interesting assertion. The Fed failed about as completely as a central bank possibly could in allowing the growth of an $ 8 trillion housing bubble. According to the Fed’s own projections, the collapse of this bubble is likely to lead to more than $4 trillion in lost economic output, more than $13,000 for every person in the United States.
By comparison, the costs of the inflation that it was battling in the 70s and 80s were trivial. It is difficult to see how anyone who understands economics would give the Fed any credibility whatsoever based on its track record.
The NYT repeatedly refers to the credibility of the Federal Reserve Board. This is an interesting assertion. The Fed failed about as completely as a central bank possibly could in allowing the growth of an $ 8 trillion housing bubble. According to the Fed’s own projections, the collapse of this bubble is likely to lead to more than $4 trillion in lost economic output, more than $13,000 for every person in the United States.
By comparison, the costs of the inflation that it was battling in the 70s and 80s were trivial. It is difficult to see how anyone who understands economics would give the Fed any credibility whatsoever based on its track record.
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The NYT got the story 100 percent wrong when it told readers that:
“International concerns about the high budget deficit in the United States, and Washington’s seeming willingness to print money rather than tackle tough debt-cutting measures, help partly explain the recent anti-American criticism from countries as diverse as Brazil, China and Germany.”
Actually, the Fed is taking more expansionary monetary policy; the government is not engaging in more stimulus. It would likely print even more money if the government began raising taxes and cutting spending.
This article is written largely like an advocacy piece. It does not include the view of any economists or any economic analyst who points out that the high current deficits are primarily the result of the economic collapse. Nor does it point out that the advocates of economic austerity lacked the competence to recognize the enormous housing bubbles, the collapse of which wrecked much of the world’s economy. Readers should know that the admonitions for austerity are coming from highly paid people of questionable competence.
The NYT got the story 100 percent wrong when it told readers that:
“International concerns about the high budget deficit in the United States, and Washington’s seeming willingness to print money rather than tackle tough debt-cutting measures, help partly explain the recent anti-American criticism from countries as diverse as Brazil, China and Germany.”
Actually, the Fed is taking more expansionary monetary policy; the government is not engaging in more stimulus. It would likely print even more money if the government began raising taxes and cutting spending.
This article is written largely like an advocacy piece. It does not include the view of any economists or any economic analyst who points out that the high current deficits are primarily the result of the economic collapse. Nor does it point out that the advocates of economic austerity lacked the competence to recognize the enormous housing bubbles, the collapse of which wrecked much of the world’s economy. Readers should know that the admonitions for austerity are coming from highly paid people of questionable competence.
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The Washington Post editorial board, which thinks that Mexico’s GDP quadrupled between 1988 and 2007 (due to NAFTA), is again pushing its trade agenda. The Post plays the usual game of calling trade agreements that increase protectionism in many areas (e.g. patents and copyrights) “free-trade” agreements. (Anyone out there opposed to “freedom?”)
The “simplistic” ads against U.S. trade policy that the Post criticized reflect the fact that this policy has had the effect of redistributing income upward over the last three decades. These deals have been quite explicitly designed to put manufacturing workers in direct competition with low-paid workers in the developing world.
At the same time, these deals have done little or nothing to remove the barriers that make it difficult for students in Mexico, China, or India from training to work as doctors, lawyers, or other highly paid professionals in the United States. There would be enormous potential gains to consumers and the economy by bringing down the cost of medical care, legal services and other services provided by these workers.
This would be a trade policy that would promote both efficiency and equality, but you won’t read about it in the Washington Post.
The Washington Post editorial board, which thinks that Mexico’s GDP quadrupled between 1988 and 2007 (due to NAFTA), is again pushing its trade agenda. The Post plays the usual game of calling trade agreements that increase protectionism in many areas (e.g. patents and copyrights) “free-trade” agreements. (Anyone out there opposed to “freedom?”)
The “simplistic” ads against U.S. trade policy that the Post criticized reflect the fact that this policy has had the effect of redistributing income upward over the last three decades. These deals have been quite explicitly designed to put manufacturing workers in direct competition with low-paid workers in the developing world.
At the same time, these deals have done little or nothing to remove the barriers that make it difficult for students in Mexico, China, or India from training to work as doctors, lawyers, or other highly paid professionals in the United States. There would be enormous potential gains to consumers and the economy by bringing down the cost of medical care, legal services and other services provided by these workers.
This would be a trade policy that would promote both efficiency and equality, but you won’t read about it in the Washington Post.
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In a major page two article the Post concealed the true nature of the major criticisms of the Fed’s actions on the crisis. The article presents a secondary issue as to whether Greenspan’s support of financial markets, for example his actions following the 1987 crash, led investors to underestimate risk.
While this is a reasonable criticism, there is the more direct point that the Fed stood by while an $8 trillion housing bubble built up in the years from 1996 to 2006. This bubble was easy for any competent economist to recognize. There was an unprecedented divergence in house prices from their long-term trend with no remotely plausible explanation in the fundamentals of the housing market.
This bubble was driving the economy. The housing bubble, along with a later bubble in non-residential real estate, led to an enormous building boom. The housing wealth created by the bubble led to a huge increase in consumption as the saving rate fell to zero.
It was 100 percent predictable that the bubble would burst. It was also inevitable that this would lead to a large decline in demand as construction plummeted in response to enormous over-building and consumption plummets in response to lost housing wealth. The lost demand is equal to approximately $1.2 trillion annually, close to 9.0 percent of GDP. There is no easy way to replace this amount of lost demand, which is why the economy is currently experiencing 9.6 percent unemployment.
All of this was entirely foreseeable by any competent economist. Greenspan and the Fed either failed to see what was going on, or saw this and failed to act anyhow. That is the nature of the criticism that the Post would not print.
It is also striking that the Post reports a debate at the meeting over whether the Fed’s quantitative easing policy runs the risk of raising inflation above the Fed’s 2.0 percent target. The fact that such a debate took place should have been a scandal and the headline of this article.
The Fed has a legal obligation to target full employment and price stability. The 9.6 percent unemployment rate is hugely above anyone’s measure of full employment. It is leading to trillions of dollars of lost output and ruining the lives of tens of millions of people. The consequence of inflation edging above 2.0 percent are incredibly trivial by comparison. This is like someone worrying about the greenhouse gas emissions from the firetruck rushing to put out a school fire. The fact that ostensibly serious people involved in setting U.S. monetary policy could debate this point should be a scandal.
In a major page two article the Post concealed the true nature of the major criticisms of the Fed’s actions on the crisis. The article presents a secondary issue as to whether Greenspan’s support of financial markets, for example his actions following the 1987 crash, led investors to underestimate risk.
While this is a reasonable criticism, there is the more direct point that the Fed stood by while an $8 trillion housing bubble built up in the years from 1996 to 2006. This bubble was easy for any competent economist to recognize. There was an unprecedented divergence in house prices from their long-term trend with no remotely plausible explanation in the fundamentals of the housing market.
This bubble was driving the economy. The housing bubble, along with a later bubble in non-residential real estate, led to an enormous building boom. The housing wealth created by the bubble led to a huge increase in consumption as the saving rate fell to zero.
It was 100 percent predictable that the bubble would burst. It was also inevitable that this would lead to a large decline in demand as construction plummeted in response to enormous over-building and consumption plummets in response to lost housing wealth. The lost demand is equal to approximately $1.2 trillion annually, close to 9.0 percent of GDP. There is no easy way to replace this amount of lost demand, which is why the economy is currently experiencing 9.6 percent unemployment.
All of this was entirely foreseeable by any competent economist. Greenspan and the Fed either failed to see what was going on, or saw this and failed to act anyhow. That is the nature of the criticism that the Post would not print.
It is also striking that the Post reports a debate at the meeting over whether the Fed’s quantitative easing policy runs the risk of raising inflation above the Fed’s 2.0 percent target. The fact that such a debate took place should have been a scandal and the headline of this article.
The Fed has a legal obligation to target full employment and price stability. The 9.6 percent unemployment rate is hugely above anyone’s measure of full employment. It is leading to trillions of dollars of lost output and ruining the lives of tens of millions of people. The consequence of inflation edging above 2.0 percent are incredibly trivial by comparison. This is like someone worrying about the greenhouse gas emissions from the firetruck rushing to put out a school fire. The fact that ostensibly serious people involved in setting U.S. monetary policy could debate this point should be a scandal.
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The media are filled with discussions about how the Democrats lost the elections because they over-reached or according to a front page Post article because President Obama was disconnected to the American people. However, there are number of models from political scientists that largely predicted the outcome based on the Democrats’ past success (meaning a large number of seats in marginal districts) and the bad economy. It would have been useful to call attention to these models even if it undermines the story the media want to tell.
The media are filled with discussions about how the Democrats lost the elections because they over-reached or according to a front page Post article because President Obama was disconnected to the American people. However, there are number of models from political scientists that largely predicted the outcome based on the Democrats’ past success (meaning a large number of seats in marginal districts) and the bad economy. It would have been useful to call attention to these models even if it undermines the story the media want to tell.
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