Beat the Press

If a Financial Transactions Tax Causes Trading to Fall, Then There are Few Costs to Pass On

The Washington Post discussed President Obama's suggestion to impose a tax on banks and including a brief mention of financial transactions taxes. Proposals for such a tax have been introduced in the House by Representative Peter Defazio and in the Senate by Tom Harkin. After noting these proposals, the article then comments: "Treasury officials oppose the idea. They warn that banks would try to impose the fee on their customers, shifting the cost partly to the broader economy. A range of legislators and economists share this view, arguing that such a tax would punish small investors and increase the cost of financial services. " Actually most estimates show the volume of trading declining sharply in response to the tax, so that much less money would be spent on brokers' fees and other trading costs. This means that the total amount of money spent on trading of stock, bonds, options, credit default swaps and other financial instruments (including the tax) is likely to change little as...

Bad Appraisals Would Not be Low Appraisals

USA Today reports that the National Association of Realtors (NAR) is unhappy about new regulations that require that appraisals be picked independently of the realtor or the bank issuing the loan. According to the article, the NAR complains that the appraisals are being down by inexperienced appraisers who don't understand the local market in which they are evaluating prices. If this is true then it would be expected that there would be more variance in appraisals, but there is no reason that appraisals should come in consistently low. There is no reason to believe that these appraisers would have a bias towards issuing low appraisals. --Dean Baker

AP Tries to Find that the Stimulus Does Not Work

Associated Press ran a "stimulus watch" piece in which it discusses a test that seemed designed to show that the stimulus failed. According to the article, the test involved comparing the changes in unemployment rates in counties that received the most amount of stimulus spending for road construction with those that received the least. The study found no differences in the movements in unemployment in these counties. In fact, it would be surprising if the tests found anything else. The road spending in the stimulus in 2009 amounted to $20 billion, about one fifteenth of the total stimulus. Assuming that this spending had a multiplier effect of 1.5, this means that it would have generated $30 billion of additional growth. That is equal to 0.2 percent of GDP. If its effect on employment was comparable to its impact on GDP, we would expect that a county with the average spending would see its employment rate increase by 0.2 percent or approximately 0.12 percentage points of the civilian...

How Do You Talk About the Deficits Without Mentioning the Wars and The Housing Crash?

In the real world this would be difficult, but not on NPR. Morning Edition had a lengthy segment on the deficit with David Walker, the president of the Peter G. Peterson Foundation, an organization founded by Peter G. Peterson, the billionaire Wall Street investment banker and Commerce Department secretary in the Nixon Administration. Walker was allowed to give his account without any alternative perspectives. Walker explained the shift from the large surpluses at the end of the Clinton era to the deficits the country is now seeing without reference to the wars in Iraq and Afghanistan and Iraq that have already added more than $1 trillion to the debt, the housing crash which has increased the debt by more than $1 trillion in 2009 alone, and the stock market crash which through the country into recession in 2001 and cost the country more than $500 billion in capital gains tax revenue. While these developments explain the vast majority of the deterioration in the budget situation in the...

Look for News Articles from the NRA's "Firearms Gazette" at the Washington Post

Andrew Alexander, the Washington Post's ombudsman, gave an argument about the Post's use of copy produced by the Peter Peterson funded "Fiscal Times." This argument can also be used to justify the use of "news" stories generated by any "news" service created by an advocacy group. As background, Peter G. Peterson is a billionaire investment banker who has been using his vast fortune to try to cut back and/or privatize Social Security and Medicare for the last two decades. He recently started the "Fiscal Times" as a new news service that reports on budget issues. His son, Michael Peterson, hired the staff. Coincidentally, the Post ran their first story from Peterson's news service on New Year's eve. Alexander notes these facts, but then decides that the Post was still keeping with proper journalistic standards because it maintained control over the content of the news. He also noted that Peterson's news service employs highly reputable reporters. And, he was assured by both Peter...

Silliness on Productivity

In discussing the December jobs report the Post repeated some of the silliness about productivity that is currently circulating among people who imagine themselves to be knowledgeable about the economy. It told readers that: "Employers slashed positions more dramatically in the past two years, squeezing more productivity out of remaining workers. That has led many analysts to expect a substantial increase in the number of jobs in the early months of 2010, as companies must hire again just to keep up with demand for their products." Actually, productivity growth averaged 2.6 percent annually over the last two years. This is somewhat more rapid than the growth rate over the prior two years but it is below the 2.9 percent average annual growth rate in the decade from 1995 to 2005. In other words, there is nothing extraordinary about the recent rates of productivity growth so there is no special reason for believing that a burst of hiring is imminent. --Dean Baker

GDP Growth Should Be Measured in Annual Rates

The NYT discussed the release of new data showing the unemployment rate hitting 10.0 percent in the euro zone countries. At one point it notes that the euro zone economies had grown by 0.4 percent in the third quarter. This is a quarterly growth figure. It is standard practice in the United States to report growth data on an annual basis. On an annual basis, the euro zone's growth would have been approximately 1.6 percent. It is unlikely that many readers were aware of this fact. While it is common to report quarterly growth rates in Europe and elsewhere, there is no reason not to convert these numbers into annual rates to make them understandable to readers. After all, these countries also use a centigrade scale for temperatures. No newspaper would report the centigrade measure in discussing the weather in Europe, especially without informing readers of the metric it was using. --Dean Baker

A Weak October: The Secret of the November Job Gain

Several news stories noted the revisions to prior months' data now show a 4,000 job gain for November. It is important to note that this is not especially positive news. The job gain no reported for November is entirely attributable to the fact that the job loss for October was revised upward by 16,000. The net effect of the revisions to the data for the two months was to show 1,000 more lost jobs than indicated in the prior release. It is difficult to see how this can be viewed as positive. --Dean Baker

HIndsight Is Not 20-20: The NYT Has the Proof

NYT columnist William Cohan t races the current downturn to the decision to rescue Bear Stearns. In Mr. Cohan's view, if the government did not rescue Bears Stearns, then there would not have been a panic when Lehman collapsed and therefore we would not have double-digit unemployment today. Someone apparently forgot to tell Mr. Cohan about the housing bubble. They must have also forgot to tell him that the recession began 8 months before the collapse of Lehman Brothers. If Mr. Cohan knew about the housing bubble he would realize that double digit unemployment is being caused by the a loss of close to $500 billion in annual spending in residential construction. Builders are not building homes because the building boom caused by the housing bubble led to enormous overbuilding. Builders would be not building any more homes today if Lehman Brothers had never collapsed or never existed. It doesn't matter, there is a glut of housing. It's really simple. The other major cause of the downturn...

Job Growth and Unemployment Claims

A Washington Post article discussed predictions around the December employment report that will be released on Friday. It noted predictions that employment will actually be shown as increasing in this report, noting several pieces of relatively good news, including the fact that the number of weekly unemployment claims had fallen to their lowest level since August of 2008. It is worth noting that the economy lost 175,000 jobs in August of 2008. In fact, it has never added jobs in a month where weekly unemployment insurance (UI) claims averaged more than 400,000. The current four week average is close to 450,000. There is also reason to believe that UI claims will fall relative to the number of layoffs as a recession continues, since many of the people who are losing their jobs are likely to have worked too little in the prior year to qualify for benefits. [Correction: I was being sloppy again -- very bad practice. The economy began to add jobs in 1992 when UI claims were still...

The Cadillac Health Care Plan is a Marginal Tax

That point seemed to be missing from an otherwise worthwhile discussion of the issue in the Post. This point is important to understanding its potential consequences. For example, if a plan just slipped over the $23,000 threshold, say to $23,500, then the tax would only apply to the $500 over the threshold. Applying the 40 percent tax rate, this implies a tax of $200, which is equal to 0.8 percent of the cost of the plan. It is unlikely that this would lead to major changes in policies. Over time, as costs continued to rise, there would be more pressure to keep the price of the plan down as the tax would have more consequence, but just crossing the tax threshold by a small amount is not a big deal. --Dean Baker

Falling Home Sales Should Not Have Been a Surprise

The plunge in the Pending Home Sales index in November should not have been a surprise to analysts. The Mortgage Bankers Association applications index for purchase mortgages went into a tailspin in late October, as people could no longer be assured of closing by November 30th, the expiration date for the original first-time buyers tax credit. In fact, the decline is even worse than the nationwide data suggest. Sales in the Northeast and Midwest fell by 25.7 percent in November, with the figure for the Midwest setting a new low for 2009. The decline was much more moderate in the West where investors are likely buying up houses in markets where the prices have plummeted. This is good news for the West, but it suggests that the markets elsewhere in the country may see considerable downward price pressure in 2010. --Dean Baker

Construction Spending Fell in November, Did Anyone Notice?

It seems that the line is that everything is good in the economy these days and we won't take about the things that are not. The Commerce Department reported that nominal construction spending fell by 0.6 percent in November. It also revised down the October data to show a decrease of 0.5 percent after previously reporting no change. The main culprit is non-residential construction, where a bubble driven boom is rapidly reversing itself, however residential and public construction also fell in the month. Barring an extraordinary turnaround in December, construction spending will knock at least half a percentage point off the growth rate for the fourth quarter. This is newsworthy. --Dean Baker

A Misadvertised Decline in the Growth Rate of Health Care Spending

The NYT highlighted the slowdown in the growth rate of national health care spending in 2008 to 4.4 percent, compared with 6.0 percent in 2007 and an average of 7.0 percent in the decade from 1998 to 2008. There really is not very much to tout in this story. The slowdown was roughly proportional to the decline in GDP growth. As a result, health care spending measured as a share of GDP rose by 0.3 percentage points, roughly the same rate of growth that it had averaged over the prior decade. The affordability of health care will depend on its growth as a share of GDP and a growth rate of 0.3 percentage points annually cannot be sustained indefinitely. --Dean Baker

Samuelson Wrong on Scarcity

The most painful aspect of the economic crisis is that the pain is unnecessary. Ordinarily we think of the economy being limited by the supply of available resources, land, labor, and capital. We can't all have huge houses with servants. In a world where the economy is limited by supply, pain is understandable, even if not acceptable. To give one person more means taking something away from someone else. But, that is not the situation the U.S. or world economy faces today. We don't have 15 million unemployed because of scarcity. We have 15 million people unemployed because of a lack of demand. This is exactly the same problem that the country faced in the depression. All we had to do then to get people employed was to spend money, which we eventually did in very large amounts to fight World War II. That is what we need to do now to end the enormous pain caused by this downturn. Unfortunately, there is a lack of political will to undertake the necessary spending in part because of...