Beat the Press

They Still Haven't Heard of Patents at the NYT

David Leonhardt had a column discussing overuse of expensive medical care in the NYT today. Remarkably, this discussion did not mention the effect of patents in complicated decisions on treatment and raising costs. Patents are essential to this discussion for two reasons. First, drugs and medical tests that are very expensive are generally expensive because of government granted patent monopolies, not their inherent cost. For example, a new generation of cancer drugs that can cost tens of thousands per year would be relatively cheap in the absence of patent protection. These drugs were expensive to develop, but once they have been developed, the production is cheap. By forcing patients to pay the high patent protected price, an otherwise simple decision (use the cheap drug) can instead be made very complicated. The other reason why patents play such an important role in this discussion is that they give a party (the patent holder) a huge stake in misrepresenting the issues. Because...

California Gets a Bad Rap on Pensions in NYT

California has done some really really stupid things (like a tax credit for first time homebuyers ), but the NYT did the state and its readers a disservice in going after California's pension fund liabilities. The basic story is that if you assume a 4.14 nominal rate of return on pension fund assets, then the state's pension liabilities look really really bad. The big question that readers should ask is, so what? There have been few people who have been more critical of assuming exaggerated market returns than me, but 4.14 percent nominal? Anyone want to take a bet that California's pension funds will do better than this? Look, the market has plummeted from its prior levels. This is good news for future returns. Lower price to earnings ratios open the door for higher future returns. The logic is simple: you are paying much less for each dollar of profits. For this reason, the assumption of 4.14 percent average nominal returns (that gives us just over 2.0 percent real, assuming a 2.0...

David Brooks' Celebration: The U.S. Is Richer Than Chad!

Okay, it's not quite that bad, but when someone who pretends to be serious wants his readers to celebrate the fact that: "the average American worker is nearly 10 times more productive than the average Chinese worker," it's getting pretty silly. (Actually it's probably closer than 7-8 times, but this is David Brooks we're talking about.) People in the United States are used to comparing their living standards to countries like Canada and Germany, not China. While China is a rapidly developing country, it is still a relatively poor country in a process of catching up. It's more than a bit silly to tell people in the United States that our productivity is many times higher than that of a poor peasant agricultural worker in central China. Brooks seems fascinated by the fact that our income is on average projected to rise. This is true and always has been true and it is true for almost every other country in the world. Incomes rise, incomes rise, incomes rise. Let's say that a few...

Response to DeLong Review of False Profits

I don't ordinarily use BTP for addressing items that mention me or my work, but I'll make an exception in the hope of getting a good exchange going. Brad DeLong was good enough to begin a review of my book False Profits on his blog. After graciously giving me credit for recognizing the housing bubble and the dangers it posed, Brad goes on: "But let me start by saying how I disagree with the book. I think that its story of the linkages between our current crisis and Federal Reserve policy is significantly overstated. Its argument about how excessively-low interest rates caused the housing bubble is exaggerated. I think that its belief that the Federal Reserve could have taken much more action to curb the housing bubble while is underway is also exaggerated, and does not recognize the very real constraints that the Federal Reserve works under and all but ignores the costs of austerity. And it overstates the strength of the links between the housing bubble and the housing crash on the...

Inventing a Surge of Job Seekers

A front page Washington Post article told readers that: "The number of people looking for jobs rose by more than 200,000 last month compared with February, according to the Economic Policy Institute -- and that's a good sign, economists say. It means that Americans are seeing more jobs being created and that they're optimistic about their prospects." Umm, actually no. This increase in the size of the labor force is too small to be statistically significant. It is not uncommon for there to be big jumps in the size of the labor force for no obvious reason. For example, the labor force was reported as rising by 543,000 people in September of 2002, a time when the economy was still shedding jobs and by 554,000 jobs in April of 2009, when employment was still plummeting. There is no reason to think that the modest job growth shown for March would have any notably effect on job seeking. --Dean Baker

Creating 162,000 Jobs Without a Drop in the Unemployment Rate Is Not a Paradox

In the middle of an article telling readers about Alan Greenspan's (yes, the guy who couldn't see an $8 trillion housing bubble) assessment of the economy, the NYT refers to the "paradox" that the Labor Department reported that the economy created 162,000 jobs in March but the unemployment rate remained fixed at 9.7 percent. This is hardly a paradox. The labor force is growing at the rate of about 125,000 workers a month. This means that March's job growth was just a little faster than what is needed to keep the unemployment rate from rising. There was no reason that anyone should have expected a decline in the unemployment rate. In fact, the number of people reported as being employed in the household survey used to measure the unemployment rate has grown far more rapidly than the number of workers on payrolls as measured in the establishment survey. Given the data reported in the establishment survey , it is surprising that the unemployment rate has not been rising the last four...

Thomas Friedman Discusses Economics and It Really Really Hurts

Thomas Friedman has refrained from discussing economics in his columns for some time and the world was happy. But, now he's back with a vengeance. He begins his column with today's "fun fact": "Between 1980 and 2005, virtually all net new jobs created in the U.S. were created by firms that were 5 years old or less, .... That is about 40 million jobs. That means the established firms created no new net jobs during that period.” The rest of the column is devoting to touting the importance of new firms, which Friedman tells us are started disproportionately by high IQ foreigners. He therefore emphasizes the need to have a more open door for high IQ immigrants. Making the U.S. more open to highly educated (I don't think we will be admitting foreigners based on IQ test results) immigrants is undoubtedly good policy. It would be great if doctors, lawyers, economists and other highly educated professionals got to enjoy the same sort of competition with low-paid workers in the developing...

How Did Greenspan Miss the Housing Bubble?

This is the question that everyone should be asking, not just of Greenspan, but of every economist in the country. The NYT has nice column by Michael Burry on the topic. --Dean Baker

NYT Reports on Private Equity Rip-Offs of State Pension Funds

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

Does Anyone Who Writes on Housing for the NYT Know Arithmetic?

When people talk about plans to "help" homeowners they must (yes, I said "must") ask two simple questions: 1) Are the homeowners being "helped" paying less in mortgage and other housing costs than they would to rent a comparable unit: and 2) Are the homeowners likely to end up with equity in their homes? Neither of these questions get asked in this discussion of the merits of the Obama administration's plans to "help" homeowners. This means that the NYT wasted readers time and killed trees for no good reason. The point should be really straightforward. We help homeowners when we actually put money in their pocket. If homeowners are paying more in housing costs than they would to rent the same unit, then we have not put money in their pocket, we have put money in the banks' pockets. This is a policy to help banks, not homeowners. That can be offset if there is reason to believe that the homeowner will eventually end up with equity in their home. Do we have any reason to believe that...

David Brooks Crusade of Denial

To those who pay attention to the economy, it's rather evident that the basic economic problems of the last two decades are the bubble driven growth of this era and the country's broken health care system. But NYT columnist David Brooks apparently never allows the actual state of the economy to affect his pronouncements about the economy and our moral state. Therefore he describes the rise of personal debt from 55 percent of national income in 1960 to 133 percent in 2007 as being the result of the fact that: "life has become secure. This has eroded the fear of debt, private and public." Let's try an alternative hypothesis. Wages have stagnated for tens of millions of workers. I guess no one Brooks hangs out with caught this development. In a context of stagnating wages, many families have been forced to take on debt to maintain living standards. The other reason that borrowing has increased is that people spent money based on their stock and housing bubble wealth. Perhaps Brooks can't...

April Fool's Joke?

I leave the assessment of this USA Today headline to readers' judgment. --Dean Baker

NYT Is Anxious to Tout Bad News About Europe

That is what the headline of an article on new economic data told readers. The headline is: "Unemployment and Inflation Rise in Europe." The data showed that unemployment increased from 9.9 percent in January to 10.0 percent in February. This increase is not statistically significant. It is also the same unemployment rate that had originally been reported for November, but was subsequently revised down to 9.9 percent. In other words, the unemployment rate has been essentially unchanged for the last four months. The rise in the inflation rate was an increase in year over year inflation from 0.9 percent in January to 1.6 percent in February. Since a major concern in most countries, including those in Europe, is deflation, this rise in the inflation rate would likely be viewed by most analysts as a positive development, although the monthly data is highly erratic so the number does not have much consequence. --Dean Baker

Offshore Drilling Will Have No Noticeable Impact on Oil Prices

The Post reported on President Obama's lifting of the moratorium on offshore drilling and the response to the decision. While the article noted the reactions of politicians and presented polling data, it neglected to mention the fact that the oil that can potentially be obtained from these areas will have no noticeable impact on oil prices. According to the Energy Information Agency , it will take two decades for the areas to reach peak production of 100,000 barrels a day, or 0.1 percent of world oil supply. In other words, the decision to open up drilling in these areas was entirely political. It had nothing to do with meeting the country's energy needs. This information probably would have been more useful to readers than accounts of the political reaction to President Obama's decision. The NYT did a bit better in providing some context, but not much. It told readers that offshore sites may provide enough oil to supply the country for 3 years. It later noted that the Gulf Coast area...

Productivity Growth Does Not Explain the Lack of Jobs

The Washington Post repeated a common complaint that the reason that the economy is not creating jobs is because employers are squeezing more productivity out of workers and therefore need fewer workers to produce the same level of output. Productivity growth cannot explain the failure for the economy to generate jobs thus far in this recovery. While productivity growth has been strong over the last year, growing by 5.8 percent from the fourth quarter of 2008 through the fourth quarter of 2009, this is common for a period of recovery. Productivity grew at a 6.9 percent rate in the four quarters from the first quarter of 2001 to the first quarter of 2002, a 5.4 percent rate from the third quarter of 1982 to the third quarter of 1983, and a 4.6 percent rate from the third quarter of 1974 to the third quarter on 1975. The rapid productivity growth seen in the last four quarters is a typical pattern at the end of a recession, it does not explain the lack of job growth in this recovery...

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