Beat the Press

Tell the NYT, Walking Away from Underwater Mortgages Is Good for the Economy

In the middle of an article discussing the likelihood that homeowners who are underwater in their mortgages would just walk away and turn over the house to bank, the NYT tells readers that: "doing nothing about underwater mortgages could encourage more walk-aways, dealing another blow to a fragile economy." It is not clear on what evidence the NYT is basing the assertion that more people defaulting on their mortgages would damage the economy because none is presented. In fact, this is likely to benefit the economy since if people stop paying mortgages on homes that have fallen in value since the collapse of the bubble, and decide to rent instead, it is likely to free up thousands of dollars a year for each family. If millions of homeowners made this decision it could lead to tens of billions of dollars in additional consumption, providing a substantial boost to the economy. The decision of homeowners to walk away might be bad news for banks, but it is good news for the economy. In...

The Government Spends $100 on the Rich for Every Dollar It Spends on the Poor

There is a new favorite in the "stupid things that intellectuals say" category. As David Brooks tells readers in the NYT this morning: "the federal government now spends $7 on the elderly for each $1 it spends on children." Of course this is true. That is because we run a retirement program through the federal government. We require workers to contribute to Social Security (they go to jail otherwise). They then get Social Security benefits back when they retire. Similarly, we also require them to pay taxes to support their health care in retirement which is provided through Medicare. (This program is not fully financed through the designated tax.) Since we require that workers pay substantial taxes through their entire working careers to the government to help support their retirement, it really should not be surprising that they get a substantial sum back from the government in retirement. However, if David Brooks and other so-called educated people want to ignore these taxes, then...

The Post Misrepresents the Budget Deficit for a Record Number of Times

Okay, I don't know if the Post really has a record, but they do continue to misinform readers by referring to this year's budget deficit as a "record ." Of course measured relative to the size of the economy, at 11 percent of GDP, the current deficit is well short of the record deficits during World War II which were more than 20 percent of GDP. The Post might have also refrained from calling President Obama's stimulus package "huge." The package was much smaller than was advocated by many economists. Such adjectives are better left for the editorial pages. The Post also told readers that: "deficits would remain elevated through 2020 and the national debt would grow -- potentially threatening the country's economic stability." This is a striking assertion from a paper that never once mentioned that the housing bubble could threaten the country's economic stability, especially since it is not supported by any of the evidence presented in the article. --Dean Baker

Counting Stimulus Jobs: Making a Scandal Out of Nothing

The Obama administration deserves credit in trying to make the spending from the stimulus package and its impact on employment as transparent as possible. They asked the beneficiaries of this money at the state and local level (both Democrats and Republicans) to list the jobs funded with it. This is a great step forward in government transparency and the Obama administration deserves credit for it, whether or not someone agrees with the stimulus. (Stimulus opponents should be able to go through this list and pick out stupid projects and point out how some large number of people wasted their time doing useless tasks.) Given that the purpose of this effort has been to simply convey information (which the Obama administration expected to show it in a favorable light) it is remarkable how critically this effort has been treated in the media. There have been numerous articles highlighting the errors in reporting. This was pretty much inevitable, given that they were relying on tens of...

NYT Talks Global Power Without a Clue

The NYT had an article on how the U.S. is likely to wane as a global power, without ever once mentioning the trade deficit. It even quoted Larry Summers, the head of President Obama's National Economic Council saying: "“How long can the world’s biggest borrower remain the world’s biggest power?” without mentioning the trade deficit. If the United States government had a large budget deficit, but no trade deficit, then it would mean that the money was being borrowed domestically. In this story, the United States government could be the world's largest borrower, but it would mean that its population was the world's largest lender. What would matter in terms of its international position would be its relative rate of productivity growth (which has been respectable in recent years). However, the United States has been running large and unsustainable trade deficits in recent years because of the over-valued dollar. The trade deficits, not the budget deficits, have caused the country to...

Tell the WSJ: The Budget Deficit Will Not Hit an All-Time High in 2010

The headline of a WSJ article on the deficit told readers that: "deficit to hit all-time high." This is not true in any meaningful way. Measured in nominal dollars, the $1.6 trillion deficit is an all-time high, but measured as a share of GDP (the only meaningful measure) the deficit is about 11 percent of GDP. This leaves it much smaller than the deficits run during World War II which exceeded 20 percent of GDP. (Marketplace radio made the same error on Monday morning.) The article reports that after falling as the economy recovers, the deficit is projected to rise again due to baby boomers collecting Social Security and Medicare. Actually, the main reason for the projected increase in the deficit at the end of the decade is rising health care costs which will get passed on in higher costs for Medicare, Medicaid and other government programs. If the United States health care system were as efficient as those in other countries , the U.S. would be expecting huge budget surpluses in...

Jeffrey Garten Inadvertently Presents the United States as a Developing Country: Over-Valued Dollar Version

Many developing countries have deliberately maintained over-valued currencies. This make imports cheaper for their elites. It also makes military goods cheaper, allowing belligerent leaders the opportunity to be more powerful. The problem with over-valued currencies is that they are not sustainable. They make imports cheaper, pricing domestically produced goods out of the market. They also make the country's exports uncompetitive. The result is a trade deficit that will grow ever larger -- compounded by the growing interest burden of a rising foreign debt -- eventually forcing down the value of the currency. Often the devaluation of the currency is a huge embarrassment for the leaders involved, in many cases resulting in changes in government. Jeffery Garten, a former top official in the Clinton administration, presents what must be the view of these developing country leaders when they are forced to confront reality and devalue their currency. After originally supporting a drop in...

President Obama's Tax Credit for Cutting Jobs

The country is currently suffering through the worst downturn since the Great Depression, with 15 million people unemployed. That might seem a strange time to introduce a tax credit, on provision of which, would give companies an incentive to hire fewer workers, but that is apparently what President Obama proposes, according to the NYT , although it fails to call this fact to readers' attention. At any point when a business needs more labor, it faces the choice of whether to work the existing work force longer hours or whether to hire additional workers. There are reasons why any given company may go one or the other direction. From the standpoint of maximizing employment, it is obviously desirable to have companies opt to hire more workers. The difference between longer hours and more workers can be dramatic. If employers opted to have their existing work force employed on average for 1 percent more hours, this would fill the same demand for labor as hiring 1.4 million workers...

Spending From the TARP is the Same as Any Other Spending

USA Today told readers that spending for the Obama administration's new jobs tax credit would come from unspent TARP money. Actually, the spending will add to the deficit just like any other spending. The TARP money is budgeted as being returned to the Treasury. It makes no difference whatsoever whether the money is said to come from TARP or not, it has the exact same impact on the budget and debt. It also would have been worth citing the extensive research on the minimum wage in the context of assessing the likely impact of this tax credit. This research shows that the demand for labor is not very responsive to moderate changes in the cost of labor. That meant, for example, that the 20 percent increase in the cost of low-wage labor associated with the 1996-1997 minimum wage increase had no measurable effect on employment. This implies that a 15 percent or so decrease in the cost of labor that would be associated with this tax credit is likely to have no measurable effect on...

Yet Another Post Editorial Hiding as a News Story

The headline of a Post article on the decision to raise the debt ceiling told readers that the new limit was a "record." Of course every increase in the debt limit is a record. That is why the debt limit is raised, the debt is rising above its prior level. The first sentence continues the editorializing by telling readers that the debt is at a "historic high." The only meaningful way to measure debt through time is relative to the size of the economy. The Congressional Budget Office projects that ratio of publicly held debt to GDP will be 60.3 percent at the end of fiscal 2010. By comparison, it was 108.6 percent at the end of 1946. Including the money owed to Social Security and other trust funds the ratio of debt to GDP would be 90.2 percent at the end of 2010. This compares to a ratio of total debt to GDP of 121.7 percent in 1946. The claim of a record or historic high would be meaningful if the debt was at a record relative to GDP, but of course it isn't true. This is just another...

Some Folks Will Say Anything to Save Bernanke's Job

Alan Blinder tells NYT readers this morning that thanks to Bernanke's adept handling of the crisis, the economy recovered much more rapidly than anyone anticipated: "The economy was nearly in free fall during the last quarter of 2008 and the first quarter of 2009, dropping by 5.4 percent and 6.4 percent in real terms, respectively. Then the moves by the Fed and the Obama administration took hold: G.D.P. barely declined in the second quarter of 2009; and by the third quarter it began to rise. As this was happening, the job loss rate, which was staggering last winter, fell by more than three-quarters. On Friday we will get the initial estimate of fourth-quarter G.D.P. growth, which analysts expect to top 5 percent. And there is a good chance that job growth is about to resume. This rapid improvement came faster than almost anyone expected." Is that so? Let's see, if we go to the Congressional Budget Office's projections made in January of 2009 , in the middle of the crisis, they were...

The Self-Effacing Geithner: An Invention at the Post?

The Post began an article on Treasury Secretary Timothy Geithner's political troubles by telling readers that: "When Timothy F. Geithner emerged as the leading candidate for Treasury secretary in late 2008, he privately urged Barack Obama to think twice about whether to hire him. Geithner had been a key architect of the government's bailout of Wall Street and would carry that history into the new job, he reminded the incoming president." While this assertion appears at the very top of the article, framing it as a piece about a hard-working public servant, it is only near the end of the piece that we discover that the source of this information was Treasury Secretary Timothy Geithner. Given that the article's only source was a person who had a strong motivation to paint himself in a positive light, it would have been better judgment not to feature his alleged warnings to President Obama so prominently in the article. --Dean Baker

Senator Conrad Threatens Default on the National Debt if He Doesn't Get His Way

North Dakota Senator Kent Conrad is threatening to hold up a vote on raising the debt ceiling if the rest of the Senate doesn't agree to form a deficit commission that goes around normal congressional procedure (and give him a lollipop). If he manages to obstruct the increase in the debt ceiling then the United States will soon lack the money to meet its various obligations, including interest payments on the debt. Any senator could threaten to force a default to get their pet project, but most other senators have not resorted to such extraordinary efforts at blackmail. It would have been useful if the Post had more clearly explained Mr. Conrad's threat to readers. --Dean Baker

The Debate Over the Cause of the Debt and Evolution

The NYT had an article discussing President Obama's plan to set up a commission to propose recommendations for reducing the deficit. At one point the article refers to the debate: "over the nation’s rising debt and its causes and solutions." There really is not much basis for debate over the cause of the debt. The debt has grown rapidly in the last two years because of the recession created by the collapse of the housing bubble. The debt would be much lower today if the deficit hawks had not been dominating public debate and distracting attention from the housing bubble in the years when it was growing to dangerous levels. Over the longer term, the deficits are projected to be unsustainable due to the growth of health care costs in the United States. Since the United States pays for more than half of its health care through public programs like Medicare and Medicaid the failure to fix the health care system will also lead to serious budget problems. As with evolution, there really is...

Thomas Friedman Has Not Heard About the Housing Bubble

Thomas Friedman gives readers a lecture on adult and childish behavior in his column today . In the latter category is the opposition to the reappointment of Ben Bernanke as Federal Reserve Board chairman. It is worth noting that Bernanke ignored the growth of the housing bubble, the collapse of which has given us the worse downturn since the Great Depression. It is difficult to imagine a more disastrous failure by a Fed chair than pushing the economy to the brink of collapse, which Mr. Bernanke told Congress was the result of his policies. Adults expect to be held accountable for their performance and hold others accountable. Mr. Friedman's lecture is more than a little off-base on this one. --Dean Baker

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