Beat the Press

Do Republicans Face Voters in November?

The Washington Post doesn't seem to think they will. In an article on the creation of a special deficit commission that will issue a report that will be voted on after the November election, the Post tells readers that:

"the commission would deliver its recommendations after this fall's congressional elections, postponing potentially painful decisions about the nation's fiscal future until after Democrats face the voters."

The New York Times Funny Section on Too Big to Fail Banks

Andrew Ross Sorkin did a good job of making things up to argue that we shouldn't have a policy against "too big to fail banks." Sorkin argued the need for big banks by telling readers that:

"If Pfizer, for example, needs to raise $20 billion for a takeover bid, or Verizon needs to raise billions to lay fiber optic cable for its FiOS service, they cannot efficiently go to 20 different community banks looking for the money."

Before Betting on a Jobs Rebound, Know Your Bet

Floyd Norris had a column in the NYT yesterday noting that recessions with sharp job declines tend to be followed by sharp rebounds. This has been a past pattern, but it is likely not to hold in this case because the nature of the downturn is different.

Kickbacks and Corruption: The Predicted Result of Patent Protection

The NYT reports that Johnson & Johnson paid kickbacks to a pharmacy company to get it to distribute its drugs for unauthorized uses to nursing home residents. This article would have benefited from some economic analysis.

This is the textbook response that would be predicted from government interference in a market through the granting of patent monopolies. The monopoly allows the patent holder to charge prices that are far above he cost of production. This gives them an enormous incentive to make side payments or bribes to increase their sales.

Industrial Production: Don't Get Fooled by the Weather

The Federal Reserve Board reported that industrial production increased by 0.6 percent in December. This would ordinarily be good news, except that a closer examination showed that manufacturing output actually shrank slightly for the month.The December increase was driven almost entirely by a 5.9 percent jump in output at utilities. This tells us about the weather across the country in December, but it doesn't tell us much about the state of the economy.

--Dean Baker

Classics in Bad Analysis: Thank Geithner That We Avoided a Great Depression

Michael Grunwald at Time Magazine does some first class apologetics for Treasury Secretary Timothy Geithner in his latest column. He repeats the line that we should be thankful to Geithner and company that we didn't have another Great Depression.

While we all should be happy that we didn't get another Great Depression, the only reason why anyone is talking about a Great Depression is because of the incredible economic mismanagement of Greenspan/Bernanke/Geithner. Remarkably, they either could not see or did not care about the growth of an $8 trillion housing bubble. It was totally predictable that the collapse of this bubble would throw the economy into a severe downturn.

China Is Already the World's Second Largest Economy

Relying on exchange rate measures of GDP, the Washington Post tells readers that China will soon pass Japan as the world's second largest economy. In fact, using the far more meaningful purchasing power parity measure of output, China long passed Japan. It's economy is now close to twice the size of Japan's.

NPR and the Economic Crisis: It's All So Complicated and Ever So Funny

Ten percent unemployment and millions of people losing their home, that's waaaaay more funny than anything on Jay Leno or Conan O'Brien. That is how they are playing it on Morning Edition.

NPR told listeners that there are so many different theories. Yeah, I guess there are many different explanations for how human life took its current form, but evolution is the only one that serious people believe. The causes of the financial crisis are not complicated, even if NPR wants its listeners to believe they are.

The Health Insurance Tax Is a Marginal Tax

It is important to point out that the proposed tax on high cost health insurance policies only applies to the amount over the cutoff. This means that if a plan costs $24,500, or $500 more than the new cutoff of $24,000 for a family plan, then the 40 percent tax would be applied to the $500, not the full $24,500. This means that a person would pay $200 in tax on this policy. This fact would probably not be clear to most readers of this Post article.

--Dean Baker

How Do You Get More Vulnerable to Economic Collapse Than the Great Depression?

In September of 2008 Federal Reserve Board Chairman Ben Bernanke ran to Congress telling them that if they did not immediately approve $700 billion for the TARP that the economy would completely collapse. According to the NYT, he told Congress yesterday that: "stripping the Fed of its powers would leave the financial system more vulnerable to collapse."

Context on the Bank Tax

President Obama's bank tax may produce some good theater, as the industry's lobbyists warn of an impending Armageddon, but it will do little to affect the fundamentals of the financial sector. The administration was projecting that the tax would raise roughly $9 billion annually over the next decade. By comparison, the annual profits of the banks in question run close to $90 billion a year. The bonuses at these institutions are likely to be in the same neighborhood. This means that the tax will be equal to roughly 5 percent of the combined profits and bonuses at the large banks.

How Will the Country Survive a Hike in Bank Fees Equal to 0.06 Percent of GDP?

That's the nightmare scenario raised by the big banks in response to President Obama's proposal to impose a tax on the largest banks equal to 9.0 billion a year. The banks argued that this would be really bad news for the economy since they would pass on the fee to their customers. It would have been helpful to point out to readers the modest impact that this possibility would actually have on the economy.

The Really Remarkable Story: Goldman Could Buy Insurance on the CDOs It Sold

Apparently both the Angelides Commission and the NYT missed the really remarkable part of the story of Goldman Sachs buying credit default swaps (CDS) against the collaterized debt obligations (CDO) that it was issuing. The incredible part is not that Goldman bet against its own issues, but rather that they found a sucker (AIG, and eventually U.S. taxpayers) who was willing to take the bet.

Warning! Commercial Announcement, New Book

Yes, I have another book. In False Profits: Recovering from the Bubble Economy, I try to correct all the ignorant experts (redundant?) who could not see the housing bubble before it burst and still cannot understand it even after the fact. It was amazing to me that so many economists, all of whom presumably learned arithmetic somewhere in their training, could not recognize an $8 trillion housing bubble as it was growing.

The Fed Makes Money the Old-Fashioned Way: By Printing It

The Washington Post and USA Today both seem very excited by record profits at the Fed. If you print a lot of money, you make a lot of money. I'm not sure if that is how they want the government to deal with its debt.

--Dean Baker