Beat the Press

Bad Math on New Jobs Tax Credits at the NYT

The NYT gave us a dose of bipartisan nonsense on its oped pages when it ran a piece by Senators Schumer and Hatch that called for giving employers a tax credit equal to the 6.2 percent employers' side contribution for Social Security on people hired this year. The problem with this idea is that there is a large body of research, most of it connected with the increases in the minimum wage, that shows that labor demand is not very responsive to changes in the cost of labor. If raising the minimum wage by 15-20 percent doesn't cause employers to hire fewer workers, then there is no reason to believe that cutting the cost of labor by 6.2 percent will lead them to hire more workers. There may be some substitution with longer term unemployed being hired instead of new entrants as a result of this tax credit, since it would only apply to people who have been out of work for at least six months, but it is just silly to imagine that it can have any noticeable impact on employment. The NYT...

Another Front Page Washington Post Editorial on the Deficit

Fox on 15th ran another front page editorial whining about the budget deficit today. The editorial begins: "Under mounting pressure to rein in mammoth budget deficits, President Obama will propose in his State of the Union address a three-year freeze on federal funding that is not related to national security,..." A real news story would have left out the word "mammoth" which conveys the newspaper's view, but provides readers with no information. The article then describes President Obama's proposal to freeze spending on the domestic discretionary portion of the budget and tells readers that: "discretionary spending -- which unlike entitlement spending is approved annually by Congress -- has risen rapidly over the past decade, by about 7.5 percent a year, according to the bipartisan Committee for a Responsible Federal Budget." Instead of relying on the "bipartisan Committee for a Responsible Federal Budget," the Post could have examined the data from the non-partisan Congressional...

Fox on Fifteenth (aka The Washington Post) Endorses Bernanke

Given the bias in its news coverage it should hardly be a surprise that the Washington Post editorial board endorsed Ben Bernanke for another term as Fed chairman. Still, the arguments in its editorial are worth noting. To begin with, the title of the piece "scapegoat at the Fed," should give everyone a good laugh to start the week. Umm, isn't Mr Bernanke the Fed chairman and before he took over in 2006 one of the seven members of the Board of Governors? Isn't it the Fed's job to maintain full employment? Is 10 percent unemployment full employment? The fact is that Bernanke either failed to see or opted not to counteract an $8 trillion housing bubble. Any competent economist could see that the collapse of this bubble would wreck the economy. How can you possibly fail more completely in a job than Mr. Bernanke has? How is holding him responsible for his job performance making him a scapegoat? But wait, the editorial gets even better: "The prospect that the Fed-bashers might actually...

WSJ on Oregon Tax Vote: "Math is Hard"

When it came to evaluating arguments on Oregon's initiatives to raise taxes on the wealthy and corporations, the WSJ told readers that: "big numbers are being wielded on both sides." This is of course true, however WSJ reporters in principle have the time and expertise to determine which numbers are correct, most readers do not. Specifically, it could have pointed out to readers that the 11 percent state income tax that would be paid by the richest residents of Oregon, if the measures pass, is a marginal tax. This is the tax rate that Oregon residents would pay on income in excess of $500,000 a year. It also would have been worth noting that Oregon has no state sales tax. This means that the Oregonians pay considerably less for most goods that they buy than do people in other states. It also would have been worth noting that if the tax increases do not take place then Oregon will be required to cut spending and lay off workers in the middle of a steep recession. This will worsen the...

Senate Minority Leader Doesn't Realize Spending Cuts in Recession Hurt Economy

This should have been a headline in news articles everywhere. According to the NYT , Senate Minority leader Mitch McConnell complained that spending was the problem driving the deficit and expressed his concern that a deficit commission could lead to tax increases and that, "raising taxes in the middle of a recession is not a good idea." Anything that reduces demand in the middle of a recession will hurt the economy. This is true of tax increases but it is even more true of government spending, which has a more direct impact on the economy. If Senator McConnell really is unaware of such basic economics then it would be appropriate to have a news story highlighting his ignorance. This would be equivalent to not knowing that Osama Bin Laden was responsible for the September 11th attack. Mr. McConnell's gaffe on this issue is certainly far more newsworthy than items like President Obama's comment on how white working class people were "bitter" during the primaries. That comment was the...

The Post Still Has Not Heard of the Housing Bubble

It apparently takes a long time for news to get to Washington, or at least to the Washington Post. It apparently still has not heard about the housing bubble -- you know that $8 trillion asset bubble whose crash gave the country the worst downturn since the Great Depression. The Post ran a major front page article about the withdrawal of government support for the housing market without ever once discussing the bubble and where prices stand in relation to their long-term trend. In fact, the article did not even discuss such basics of the housing market as vacancy rates (record highs) and trends in rents (falling in nominal terms for the first time ever). If the Post had talked to anyone familiar with the fundamentals of the housing market they would have told them that prices are still 15-20 percent above trend levels. The extraordinary level of government support in the last year, which includes the first-time buyer tax credit and the explosion of FHA financing, in addition to the...

The Washington Post Runs Front Page Editorial Against Bank Tax and For Bernanke

The second paragraph of a front page Washington Post article tells readers: "Now, an aggressive stance against the bankers, financiers and even government officials popularly blamed for causing the crisis is gaining political momentum, and there are signs it is eroding the very financial stability the government championed." This statement is misleading in several ways. First the article presents no real evidence that financial stability is being eroded. It discusses the drop in share prices in recent days. This has as much to do with financial stability as the score of the weekend's football games. The market fluctuates all the time without in any way jeopardizing the financial stability of the economy. Equating financial stability with the stock market's performance is incredibly irresponsible. It implies that anything that might hurt the profitability of any important sector of corporate America, for example a public option in the health insurance industry, could undermine the...

The Man Who Praised Iceland's Economy Supports Bernanke

Frederick Mishkin, the former Federal Reserve Board Governor who is best known for his 2006 study praising Iceland's economy to the sky, endorsed Bernanke's reappointment as Fed chair. According to the NYT , Mishkin commented: "My view is Chairman Bernanke helped save the world from depression, ... Whether you agree with every policy he’s pursued or some of the ways the bailouts were done, the outcome here, given the severity of the shock, is a good one. But that’s hard to explain to the American public when we’re sitting with 10 percent unemployment.” It would have been worth reminding readers of Mishkin's track record. It probably also would have been worth pointing out that the severe shock that Mr. Mishkin referred to was the result of Bernanke and Greenspan's failure in managing the economy. --Dean Baker

President Obama Didn't Mention That the Losses Incurred by Fannie and Freddie Were Profits for the Banks

It is always best to be careful in pointing items not mentioned by the President or any other political figure. (it's a long list.) In the context of discussing President Obama's plan to impose a tax on the country's largest banks, the Washington Post told readers that, "he did not mention that the biggest banks had paid back their bailout money, often with the government reaping a profit, although that has not been the case with the large insurer AIG or the auto companies." This is one of the pieces of information that President Obama did not share with his audience. He also did not share the fact that Fannie Mae and Freddie Mac have already lost more than $100 billion. These losses result from buying mortgages from banks for an amount that exceeds their value. In effect, Fannie and Freddie's losses are the banks' profits since they prevented the banks from having to incur these losses. On the night before Christmas the Obama administration removed the $200 billion cap on losses that...

Funny Math on Bernanke in the WSJ

The WSJ discussed the likely line-up on a vote to approve Ben Bernanke's reappointment as Fed chairman. At one point it tells readers that: "If the full Senate votes in a similar proportion that the Senate Banking Committee did in its 16-7 approval last month, Mr. Bernanke would receive 69 votes—the fewest since Paul Volcker, who was confirmed 84-16 for a second term in 1983." This is difficult to understand. If Volcker received 84 votes supporting his second term then this is considerably more than the 69 projected for Bernanke. It is probably also worth mentioning in the context of this vote, that the Fed's policy under Bernanke's tenure (both as fed chairman and as a member since 2002 of the 7 member Board of Governors) brought the economy to the brink of a second Great Depression, according to Mr. Bernanke's own assessment. This sort of performance would get a worker quickly fired in most other jobs. --Dean Baker

No Major Country Had a Financial Collapse

The NYT has an article on President Obama's turn to a more populist stance on Wall Street. At one point the article notes criticisms that Treasury Secretary Timothy Geithner and Larry Summers, the head of the National Economic Council, were too friendly to Wall Street banks. It reports that Obama "believed they [Geithner and Summers] had not received credit for stabilizing a financial system that by all accounts was on the verge of collapse when the president took office." It's not clear whose accounts this statement is referring to: presumably the accounts of economists who could not see an $8 trillion housing bubble. It is worth noting that no major country saw a collapse of its financial system in this crisis, so there was apparently nothing unique in the abilities of the Geithner and Summers in this area. Preventing the collapse of the financial system should probably seen as being comparable to a major league outfielder catching a long fly ball. It's not that easy, but major...

The Post Just Can't Resist Editorializing on the "Skyrocketing" Budget Deficits

The Post yet again could not resist the urge to editorialize on the deficit in a news story , referring to it as "skyrocketing." Of course the debt is increasing rapidly as a result of the downturn caused by the economic mismanagement of Alan Greenspan and Ben Bernanke, but if the economy recovers as predicted, then the deficits will shrink to more reasonable levels in the near future. Terms like "skyrocketing" belong in editorials, not news stories in serious newspapers, unless they are direct quotes. It would have also been helpful to remind readers, in discussing Republican complaints about the Obama administration's deficits, that these deficits are primarily attributable to the economic mismanagement that occurred under a Republican administration. --Dean Baker

Trading Did Not Sink the Banks

A NYT article that discussed the Obama administration's plans to prohibit proprietary trading by large commercial banks told readers that: "big losses in the trading of those securities precipitated the credit crisis in 2008 and the federal bailout." This is not accurate. Banks suffered big losses on their holdings of both mortgages and mortgage-backed securities. In most cases, they had bought mortgages to package into securities or had actually packaged them into securities that they were unable to sell off when the housing market collapsed. The losses they incurred from trading were in almost cases secondary. There are three types of activities that need to be distinguished. There is the traditional commercial banking activity of taking deposits and making business and consumer loans. There is investment banking, which involves creating and underwriting securities, including mortgage-backed securities. And, there is trading for a bank's own account, an activity that generally had...

China as #2

There is another round of news pieces about China becoming the world's second largest economy, for example the NYT headlined a piece that discussed this possibility, and NPR mentioned it in Morning Edition's top of the hour news segment. This is really really silly. China has long been the second largest economy using a purchasing parity measure of GDP. It is already close to twice the size of Japan's economy. Purchasing power parity measures the output of an economy using a common set of prices for goods and services for all countries. The exchange rate measure is arbitrary since exchange rates fluctuate widely and in the case of China is set by the government. For example, if China's government had opted to raise the value of the yuan by 20 percent against the dollar (probably still leaving it somewhat under-valued), its economy would have been larger than Japan's by an exchange rate measure 2-3 years ago. --Dean Baker

When Did Leftists Run Mexico and Colombia?

In discussing the victory of a center-right candidate over his center-left opponent, the NYT told readers that: "The winner, Sebastián Piñera, 60, joins Alan García of Peru, Felipe Calderón of Mexico and Álvaro Uribe of Colombia as clearly right-wing leaders presiding over major Latin American countries, where left-wing candidates with socialist agendas have held more sway in recent years." While a leftist candidate arguably won the actual vote in the last presidential election in Mexico, the government has been in the hands of the center-right for decades. The same is true of Colombia. The current president of Peru, Alan Garcia, could be described as left-wing when we was first elected in the 80s, but this was more than a quarter century ago. In short, there is no evidence, at least in these three countries, of left-wing governments being replaced by more conservative ones in recent years. --Dean Baker

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