When he was Fed chairman, Alan Greenspan was almost a cult figure, with the media treating every pronouncement as a gem containing great wisdom. His status is somewhat lower now that is apparent that his incredible mismanagement of the economy has given us the worst economic crisis since the Great Depression.
This raises the issue of why the media, or anyone else, should care that Alan Greenspan now thinks that it would be a good idea to let the Bush tax cuts lapse in their entirety. Those who care about such trivia may recall that Mr. Greenspan had originally been an important advocate of these tax cuts. His stated reason was that he was concerned that the government would pay off its debt too quickly.
When he was Fed chairman, Alan Greenspan was almost a cult figure, with the media treating every pronouncement as a gem containing great wisdom. His status is somewhat lower now that is apparent that his incredible mismanagement of the economy has given us the worst economic crisis since the Great Depression.
This raises the issue of why the media, or anyone else, should care that Alan Greenspan now thinks that it would be a good idea to let the Bush tax cuts lapse in their entirety. Those who care about such trivia may recall that Mr. Greenspan had originally been an important advocate of these tax cuts. His stated reason was that he was concerned that the government would pay off its debt too quickly.
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As the continued interest in the thoughts of Alan Greenspan shows, there is absolutely no amount of failure and incompetence that can get a person removed from the ranks of wise people once they have held an important government office. In keeping with this spirit, the Washington Post turned to Franklin Raines, a former director of the Office of Management and Budget (OMB), to get advice for Jack Lew, the income director, on dealing with the deficit.
Mr. Raines was a past director of OMB, but his greatest claim to fame was probably his tenure as CEO at Fannie Mae, which ended in 2004 due to an accounting scandal. While Fannie and Freddie are not the villains of the housing bubble that the right likes to claim (private issuers of mortgage backed securities were far bigger sinners), the mortgage giants were incredibly irresponsible in their failure to recognize the bubble (which was already evident by 2004) and to adjust their lending accordingly.
This is why it is more than a bit infuriating to see Mr. Raines tell us that:
“Most of the long-run deficit is composed of the interest on debt piled up because we were unwilling to pay today (or over an economic cycle) for the spending we want today.”
Yes, we did not run up huge surpluses in prior years in anticipation that there would be a huge housing bubble, the collapse of which would devastate the economy and require massive government stimulus to restore growth. I suppose that we can all plead guilty on that one.
[Addendum: Yes, I had earlier written in Harold Raines, which I corrected after a reader e-mailed me. The cause of the confusion is of course the legendary Chicago White Sox outfielder, Harold Baines.]
As the continued interest in the thoughts of Alan Greenspan shows, there is absolutely no amount of failure and incompetence that can get a person removed from the ranks of wise people once they have held an important government office. In keeping with this spirit, the Washington Post turned to Franklin Raines, a former director of the Office of Management and Budget (OMB), to get advice for Jack Lew, the income director, on dealing with the deficit.
Mr. Raines was a past director of OMB, but his greatest claim to fame was probably his tenure as CEO at Fannie Mae, which ended in 2004 due to an accounting scandal. While Fannie and Freddie are not the villains of the housing bubble that the right likes to claim (private issuers of mortgage backed securities were far bigger sinners), the mortgage giants were incredibly irresponsible in their failure to recognize the bubble (which was already evident by 2004) and to adjust their lending accordingly.
This is why it is more than a bit infuriating to see Mr. Raines tell us that:
“Most of the long-run deficit is composed of the interest on debt piled up because we were unwilling to pay today (or over an economic cycle) for the spending we want today.”
Yes, we did not run up huge surpluses in prior years in anticipation that there would be a huge housing bubble, the collapse of which would devastate the economy and require massive government stimulus to restore growth. I suppose that we can all plead guilty on that one.
[Addendum: Yes, I had earlier written in Harold Raines, which I corrected after a reader e-mailed me. The cause of the confusion is of course the legendary Chicago White Sox outfielder, Harold Baines.]
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The NYT had a piece reporting on how banks may alter their business practices in order to make up for provisions in the financial reform bill that could reduce profits. The article notes that banks may start charging for some services that they currently provide free to customers. For example it reports that banks may no longer offer free checking, instead charging most customers fees for their accounts as a way to make up for lower margins on credit and debit cards.
The piece then quotes J.P. Morgan CEO Jamie Dimon:
“If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger. … Over time, it will all be repriced into the business.”
Actually, this is not typically true. If a particular restaurant charged high prices for its drinks in order to subsidize its burgers, then we would expect many customers would just buy the burgers and order water. The restaurant would only be able to get away with its burger subsidy strategy if it either did not offer the customer the choice of just getting the burger or if there was collusion with other restaurants. This suggests collusion in the highly concentrated credit and debit card industry, which would mean that anti-trust action would have been appropriate in the absence of the restrictions in the new law. The implication is that banks used their market power to have customers subject to overdraft fees or users of debit cards subsidize the checking accounts of customers who did not paid these fees.
It also is worth noting that banks’ profitability will not necessarily be restored to pre-regulation levels. This would only necessarily be the case if banks were just making a normal profit, below which they would go out of business. Certainly J.P. Morgan and other large banks are making more than a normal profit.
The NYT had a piece reporting on how banks may alter their business practices in order to make up for provisions in the financial reform bill that could reduce profits. The article notes that banks may start charging for some services that they currently provide free to customers. For example it reports that banks may no longer offer free checking, instead charging most customers fees for their accounts as a way to make up for lower margins on credit and debit cards.
The piece then quotes J.P. Morgan CEO Jamie Dimon:
“If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger. … Over time, it will all be repriced into the business.”
Actually, this is not typically true. If a particular restaurant charged high prices for its drinks in order to subsidize its burgers, then we would expect many customers would just buy the burgers and order water. The restaurant would only be able to get away with its burger subsidy strategy if it either did not offer the customer the choice of just getting the burger or if there was collusion with other restaurants. This suggests collusion in the highly concentrated credit and debit card industry, which would mean that anti-trust action would have been appropriate in the absence of the restrictions in the new law. The implication is that banks used their market power to have customers subject to overdraft fees or users of debit cards subsidize the checking accounts of customers who did not paid these fees.
It also is worth noting that banks’ profitability will not necessarily be restored to pre-regulation levels. This would only necessarily be the case if banks were just making a normal profit, below which they would go out of business. Certainly J.P. Morgan and other large banks are making more than a normal profit.
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Like the school kid who is always coming up with silly excuses for not doing their homework, corporations always blame the government for their failures. Lately they have been whining that the reason they don’t hire more workers is the uncertainty created by government regulations. The Washington reported these complaints on the front page.
While the article did present the views of some economists, there is actually a very simple way to disprove the businesses’ claim. The number of hours worked per worker has plunged in this downturn and risen only modestly from its lowpoint. The current average of 34.1 hours is almost 2 percent lower than the 34.7 average in December of 2007, the month the recession began.
If firms would otherwise hire workers but are being discouraged by uncertainty or regulations then the number of hours worked per worker should be increasing, not decreasing. Firms would be working their existing workforce longer rather than hiring new workers. Since firms are actually using their existing workforce less, this implies that the problem is a lack of demand pure and simple.
Businesses pay their lobbyists lots of money to develop stories that will make regulations more pro-business. Reporters should be able to assess these arguments, not just pass along to readers any silly story that a lobbyist can dream up.
Like the school kid who is always coming up with silly excuses for not doing their homework, corporations always blame the government for their failures. Lately they have been whining that the reason they don’t hire more workers is the uncertainty created by government regulations. The Washington reported these complaints on the front page.
While the article did present the views of some economists, there is actually a very simple way to disprove the businesses’ claim. The number of hours worked per worker has plunged in this downturn and risen only modestly from its lowpoint. The current average of 34.1 hours is almost 2 percent lower than the 34.7 average in December of 2007, the month the recession began.
If firms would otherwise hire workers but are being discouraged by uncertainty or regulations then the number of hours worked per worker should be increasing, not decreasing. Firms would be working their existing workforce longer rather than hiring new workers. Since firms are actually using their existing workforce less, this implies that the problem is a lack of demand pure and simple.
Businesses pay their lobbyists lots of money to develop stories that will make regulations more pro-business. Reporters should be able to assess these arguments, not just pass along to readers any silly story that a lobbyist can dream up.
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Economists across the political spectrum believe that the Federal Reserve Board and other central banks failed miserably in the Great Depression, failing to respond quickly to the financial collapse in the U.S. and elsewhere. In addition, they extended the downturn by refusing to pursue aggressive monetary policy that would have countered the deflationary trends in the world economy.
While the media are not actively discussing the history of the Great Depression, the deference in current reporting to central banks certainly implies that they would not have reported any criticisms of the central banks’ behavior in the Great Depression. For example, the Washington Post today reported on concerns expressed by the IMF and others over a wave of refinancing that will be necessary in the next few years. Central banks, like the Fed and the European Central Bank (ECB), could provide the money needed to support this refinancing.
While this would involve pumping trillions of dollars into the world economy, there is little basis for concern about inflation given the enormous excess capacity in nearly every sector and every country. Tens of trillions of private sector wealth has disappeared with the collapse of the housing bubble in the United States and elsewhere, so even very aggressive monetary policies would only replace a fraction of the paper wealth that existed a few years ago.
In a similar vein, NPR ran a piece on the economic crisis in Spain and never once mentioned the possibility that overly-restrictive policy by the ECB was a factor in the country’s double-digit unemployment rate. Whatever other problems Spain has, it certainly would be in better shape if the euro region had a 3-4 percent inflation rate rather than the near zero rate that has resulted from current ECB policy.
Central banks often make mistakes. They made horrendous mistakes in the 30s that led to enormous suffering. This downturn was the result of their failure to recognize housing bubbles and to take steps to counter them. If an economic reporter is unable to recognize the fallibility of central banks then they should be in a different line of work.
Economists across the political spectrum believe that the Federal Reserve Board and other central banks failed miserably in the Great Depression, failing to respond quickly to the financial collapse in the U.S. and elsewhere. In addition, they extended the downturn by refusing to pursue aggressive monetary policy that would have countered the deflationary trends in the world economy.
While the media are not actively discussing the history of the Great Depression, the deference in current reporting to central banks certainly implies that they would not have reported any criticisms of the central banks’ behavior in the Great Depression. For example, the Washington Post today reported on concerns expressed by the IMF and others over a wave of refinancing that will be necessary in the next few years. Central banks, like the Fed and the European Central Bank (ECB), could provide the money needed to support this refinancing.
While this would involve pumping trillions of dollars into the world economy, there is little basis for concern about inflation given the enormous excess capacity in nearly every sector and every country. Tens of trillions of private sector wealth has disappeared with the collapse of the housing bubble in the United States and elsewhere, so even very aggressive monetary policies would only replace a fraction of the paper wealth that existed a few years ago.
In a similar vein, NPR ran a piece on the economic crisis in Spain and never once mentioned the possibility that overly-restrictive policy by the ECB was a factor in the country’s double-digit unemployment rate. Whatever other problems Spain has, it certainly would be in better shape if the euro region had a 3-4 percent inflation rate rather than the near zero rate that has resulted from current ECB policy.
Central banks often make mistakes. They made horrendous mistakes in the 30s that led to enormous suffering. This downturn was the result of their failure to recognize housing bubbles and to take steps to counter them. If an economic reporter is unable to recognize the fallibility of central banks then they should be in a different line of work.
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When the co-chairman of President Obama’s deficit commission gets his deficit numbers off by 100 percent, you would think this would be worth a little media attention. But apparently this is not the case.
Therefore when Erskine Bowles warned the National Governors’ Association that the country would be spending $2 trillion a year in interest on the debt in 2020, virtually no reporters thought it was worth mentioning that he had exaggerated the interest burden by a factor of more than 2 the Congressional Budget Office’s “alternative scenario” (Table 1-2).
It is difficult to believe that if Speaker Pelosi or some other prominent Democrat argued for a stimulus package because the unemployment rate is 19.0 percent that the media would ignore their disconnect with reality. It is hard to understand why neither Mr. Bowles nor his co-chair, former Wyoming Senator Alan Simpson, are not held to comparable standards of accuracy.
(Thanks to Jed Graham who got it right.)
When the co-chairman of President Obama’s deficit commission gets his deficit numbers off by 100 percent, you would think this would be worth a little media attention. But apparently this is not the case.
Therefore when Erskine Bowles warned the National Governors’ Association that the country would be spending $2 trillion a year in interest on the debt in 2020, virtually no reporters thought it was worth mentioning that he had exaggerated the interest burden by a factor of more than 2 the Congressional Budget Office’s “alternative scenario” (Table 1-2).
It is difficult to believe that if Speaker Pelosi or some other prominent Democrat argued for a stimulus package because the unemployment rate is 19.0 percent that the media would ignore their disconnect with reality. It is hard to understand why neither Mr. Bowles nor his co-chair, former Wyoming Senator Alan Simpson, are not held to comparable standards of accuracy.
(Thanks to Jed Graham who got it right.)
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NPR wants to convince listeners that the European welfare state is on its last legs. While it tells listeners this, nothing in the piece actually supports this case.
For example, it implies that growth is grinding to a halt in Europe because of its generous welfare state, noting that Europe is expected to grow just 1.0 percent this year, while the U.S. is projected to grow by 3.0 percent. Actually, GDP growth in the U.S. is projected as being close to 2.1 percent this year by the Congressional Budget Office and most other forecasters, but this is really beside the point. More importantly, no one would draw any conclusions about growth based on a single year, especially one in the middle of a downturn.
Any economist could have explained to NPR that growth in the European Union (EU) is being constrained right now by lack of demand, not lack of supply. This means that the cause of weak growth in the EU right now cannot be welfare state restrictions on supply but rather bad policies from the European Central Bank and the Bank of England (they claim to fear inflation, which in the real world ranks slightly below an invasion from Mars on the list of risks right now). If the central banks pursued more expansionary monetary policy, there is little doubt that economies across Europe would be growing more quickly. It is almost inconceivable that NPR could do a piece referring to Europe’s weak growth and not note this fact.
It is also important to note that Europe has much slower population growth than the United States. Economists usually focus on per capita income as a primary measure of economic well-being, not total GDP. (Indonesia has a much higher GDP than Denmark, but because it has 40 times the population, no one would claim that Indonesia is richer.) The difference in population growth is approximately 0.9 percentage points, which means that per capita growth in the EU and the U.S. are projected to be very comparable this year.
The piece also briefly commented on the universal health care provided in Europe and implied that this may no longer be affordable. It would have been worth noting that European countries pay on average less than half as much per person as the United States for health care. In fact, the government spends more money per person on our private health care system than governments do in Europe on their more publicly controlled systems. It is absurd to imply that a switch to a U.S.-type system would somehow save money.
NPR wants to convince listeners that the European welfare state is on its last legs. While it tells listeners this, nothing in the piece actually supports this case.
For example, it implies that growth is grinding to a halt in Europe because of its generous welfare state, noting that Europe is expected to grow just 1.0 percent this year, while the U.S. is projected to grow by 3.0 percent. Actually, GDP growth in the U.S. is projected as being close to 2.1 percent this year by the Congressional Budget Office and most other forecasters, but this is really beside the point. More importantly, no one would draw any conclusions about growth based on a single year, especially one in the middle of a downturn.
Any economist could have explained to NPR that growth in the European Union (EU) is being constrained right now by lack of demand, not lack of supply. This means that the cause of weak growth in the EU right now cannot be welfare state restrictions on supply but rather bad policies from the European Central Bank and the Bank of England (they claim to fear inflation, which in the real world ranks slightly below an invasion from Mars on the list of risks right now). If the central banks pursued more expansionary monetary policy, there is little doubt that economies across Europe would be growing more quickly. It is almost inconceivable that NPR could do a piece referring to Europe’s weak growth and not note this fact.
It is also important to note that Europe has much slower population growth than the United States. Economists usually focus on per capita income as a primary measure of economic well-being, not total GDP. (Indonesia has a much higher GDP than Denmark, but because it has 40 times the population, no one would claim that Indonesia is richer.) The difference in population growth is approximately 0.9 percentage points, which means that per capita growth in the EU and the U.S. are projected to be very comparable this year.
The piece also briefly commented on the universal health care provided in Europe and implied that this may no longer be affordable. It would have been worth noting that European countries pay on average less than half as much per person as the United States for health care. In fact, the government spends more money per person on our private health care system than governments do in Europe on their more publicly controlled systems. It is absurd to imply that a switch to a U.S.-type system would somehow save money.
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In an article on the jump in the trade deficit reported for May the Post referred to trade deals as “free trade” agreements. This is not accurate since the deals actually increase many protectionist barriers and do little or nothing to reduce the protectionist barriers that sustain high wages for many professionals. The Post could save space and increase accuracy if it just left out the word “free.”
In an article on the jump in the trade deficit reported for May the Post referred to trade deals as “free trade” agreements. This is not accurate since the deals actually increase many protectionist barriers and do little or nothing to reduce the protectionist barriers that sustain high wages for many professionals. The Post could save space and increase accuracy if it just left out the word “free.”
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The Post yet again tells us that members of Congress are political philosophers, telling readers that: “Congress’s inaction [in approving an extension of unemployment benefits] has been accompanied by a growing sentiment among lawmakers that long-term unemployment benefits create a disincentive for the jobless to find work.”
How does the Post know what sentiments members of Congress have? Furthermore is there any reason to believe that their sentiments explain their votes on important issues?
Members of Congress get elected and re-elected by getting the support of powerful interest groups, not on their abilities as political philosophers. While the opponents of extending unemployment benefits may believe that they are bad policy, this is likely less relevant to the their votes than the political considerations behind this vote.
At the moment, the Republicans appear to have adopted a strategy of blocking anything that President Obama tries to do, with the idea that a bad economy will be good for them on Election Day. While the Post may not want to assert in a news story that this is the explanation for their opposition to extending unemployment benefits, it is certainly inappropriate to provide an alternative explanation for which it has zero evidence.
The Post yet again tells us that members of Congress are political philosophers, telling readers that: “Congress’s inaction [in approving an extension of unemployment benefits] has been accompanied by a growing sentiment among lawmakers that long-term unemployment benefits create a disincentive for the jobless to find work.”
How does the Post know what sentiments members of Congress have? Furthermore is there any reason to believe that their sentiments explain their votes on important issues?
Members of Congress get elected and re-elected by getting the support of powerful interest groups, not on their abilities as political philosophers. While the opponents of extending unemployment benefits may believe that they are bad policy, this is likely less relevant to the their votes than the political considerations behind this vote.
At the moment, the Republicans appear to have adopted a strategy of blocking anything that President Obama tries to do, with the idea that a bad economy will be good for them on Election Day. While the Post may not want to assert in a news story that this is the explanation for their opposition to extending unemployment benefits, it is certainly inappropriate to provide an alternative explanation for which it has zero evidence.
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The NYT ran a front page story about how SmithKline Beecham concealed test results showing that its diabetes drug, Avandia, increased the risk of heart attack. It would have been worth including some economic analysis pointing out that this sort of behavior is a predictable result of government granted patent monopolies.
The huge mark-ups that drug companies get as a result of this monopoly give drug companies an enormous incentive to misrepresent the results of drug trials. Not mentioning patent protection in the context of an article like this would be like reporting on the black market in blue jeans in the Soviet Union without pointing out that there was a shortage of jeans at the prices set in stores run by the government.
The NYT ran a front page story about how SmithKline Beecham concealed test results showing that its diabetes drug, Avandia, increased the risk of heart attack. It would have been worth including some economic analysis pointing out that this sort of behavior is a predictable result of government granted patent monopolies.
The huge mark-ups that drug companies get as a result of this monopoly give drug companies an enormous incentive to misrepresent the results of drug trials. Not mentioning patent protection in the context of an article like this would be like reporting on the black market in blue jeans in the Soviet Union without pointing out that there was a shortage of jeans at the prices set in stores run by the government.
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