Beat the Press

What Would be Evidence of a Housing Bust?

One should never make too much of a single month's data, but yesterday's report of a sharp falloff in existing home sales, price declines throughout most of the country, and record inventories of unsold homes, might be seen as supporting the view that a bubble is bursting, but not in the NYT. The Times article on the report included no comments from people expecting a serious downturn in the market. It also included this choice quote from Joshua Shapiro, chief United States economist with MFR [sorry, I don't know what it is]: "the trend here is one of stabilizing prices after the sharp gains seen for many years... While certainly a change in trend, so far the official data are not corroborating some of the more alarmist stories being bandied about recently.� The Times article also earns another BTP goat prize. Apparently no one noticed the concesions being offered by sellers (some in full-page ads). These non-price concessions (e.g. help on buyer-side closing costs, subsidized...

Really Bad Immigration Bill Numbers at the Washington Post (corrected version)

I wrote a short note a couple of days ago about an article in the Washington Post on the immigration bill passed by the Senate. I wrote that the article used an estimate from CBO that was based on an error in the bill's wording that would almost surely be corrected before the final passage. After someone sent me a note, I reread the CBO report and I realized that the article had correctly reported the spending in the bill, as projected by CBO. However, it had neglected to mention the increase in tax revenue that CBO projected based on the corrected wording. The headline and the article itself referred to $126 billion in spending over 10 years (0.4 percent of projected spending). This figure is correct. However, the net cost of the bill, after taking into account the projected increase in tax revenue, is $83 billion over ten years, or 0.2 percent of projected spending. The article should have focused on the net cost, but I should have gotten my numbers right. --Dean Baker

Bad Housing Market News: The Surprise that Surprises

House prices have stayed even with the overall inflation rate from 1950-1995. Since 1995 they have risen by more than 50 percent in real terms. There has been no remotely comparable increase in rents. As a result, home building has been hugely outpacing the rate of household formation and vacancy rates are at record levels. Given this information, economists should see a bubble in the housing market and expect prices to plummet. Instead, when they see bad news on sales, they are surprised . The news should be, "why are economists surprised by the collapse of a housing bubble?" Of course, the news five years ago should have been "why are economists surprised by the collapse of a stock bubble?" Unfortunately, the media never wrote that story five years ago, and they seem determined not to write the story about surprised economists this time either. --Dean Baker

The Wall Street Journal Discovers the Housing Bust

Good to see that reporters and my fellow economists are now discovering some of the downsides of the housing bubble. The WSJ now recognizes the problem in part , although we're still only talking about something "harder than a soft landing but softer than a hard landing." But, that's progress. The article earns a BTP goat prize for failing to note that current house price indices are failing to pick up the full decline in prices because they miss the various concessions (seller paid closing costs, buyer-side realtor bonuses, and seller subsidized mortgages) that sellers often use to move their houses. The WSJ also notes that the housing affordability index hit a record low. How could that have happened, seems it was at record highs just a few years ago. Excuse me while I go tear my hair out . --Dean Baker

NPR�s Counterfeit Reporting on China

NPR ran a piece this morning on �counterfeiting� in China. (Anyone who heard the story knows that NPR disapproves of the practice being discussed, but the term that neutral reporters use is �unauthorized copying.�) The segment included no economic analysis of the practice, which would point out many of the benefits of unauthorized copies. The segment included no discussion of the relative quality of the authorized copies. Nor did the segment even clarify the extent to which the unauthorized copies are genuinely counterfeit products. (The goods are only genuine counterfeits if the consumers believe that they are buying the brand whose products are being copies.) A serious report on unauthorized copying would discuss such issues, pointing out that unauthorized copying can provide enormous economic gains. If the brand product sells at 5 or 10 times the price of the copy, then the economic harm of eliminating the unauthorized copies is the same as imposing tariffs of 500 or 1000 percent,...

From the New York Times Canadian Health Care Bashing Desk

As I have noted before (see � Missing Fact on British Health Care ,� May 7, 2006), the New York Times feels the need to periodically run articles on the health care crises in countries with universal health care systems. These articles never make comparisons to the health care situation in the United States, which might help readers put the articles in some context. An article in today�s Times fits the bill perfectly, reporting the surprising news that many Canadian doctors are hoping to make more money outside of the country�s public health care system. (Actually, the article never mentions the possibility that doctors want to leave the public system to make more money. The article implies that the doctors are just very publicly minded individuals who only think of the public good, not about money.) Anyhow, the article includes the obligatory assertions about long waiting lines in the Canadian system from a right-wing think tank. The article does not include any comments from...

Really Bad Immigration Bill Numbers at the Washington Post

The Post had an article on the Congressional Budget Office�s (CBO) estimate of the cost of the recently passed Senate immigration bill that was sure to mislead anyone who reads it. The article�s headline warns that CBO estimated the 10-year cost at $126 billion. This headline not only commits the common sin of scaring readers with a big number outside of any context (the spending is less than 0.4 percent of projected federal spending), it also fundamentally misrepresents the CBO report. The report is very clear that there was a mistake in the wording of the bill. The $126 billion is an estimate based on the mistaken wording. CBO did a separate estimate that is based on the intention of the sponsors of the bill, as conveyed to them from conversations with the key sponsors of the bill and their staff. The net cost of the bill under this estimate is less than $35 billion over the next decade, or less than 0.1 percent of projected spending. Members of Congress may not be the brightest...

Black Market Guitar Picking

The absurdities associated with copyright enforcement in the 21st century seem to be endless. The NYT had an article on another one this morning. Apparently publishers of sheet music are up in arms over guitar tablature sites. These are sites where guitarists pass along tips to each other on how to play particular songs. (I know nothing about guitar playing, so I welcome clarification.) The sheet music publishers argue that these sites, which are accessible at no charge, are a violation of their copyright for the sheet music and should be shut down. This is the best copyright enforcement story I�ve heard since the publishers of the Harry Potter series went after sites in which people exchanged their own Harry Potter stories � a great use of the state�s police power. (Anyone know how this one was resolved in the courts?) What's missing in the NYT coverage of these stories is any input from economists. These problems arise because the state is granting a monopoly with copyrights, which...

Jobs Without Money? Employment in the Mortgage Banking Industry

Mortgage applications in 2006 are running at a pace that is about one-third lower than the year-round average for 2003. One-third fewer mortgages should mean that revenue is roughly one-third lower. This would presumably translate into a substantial drop in employment in the industry, but not according to the Washington Post . Relying on industry sources, the article explains that mortgage bankers are cutting staff through attrition or simply allowing commision based pay to fall with the number of mortgage applicants. This could be the case for the moment, but it's hard to believe that employment will not adjust at least partly to the drop of revenue. Industries never like to tell reporters that business is bad and layoffs are soaring. It would have been a good idea to talk to an analyst not connected to the industry.

I.R.S. Cracks Down

The NYT had a good piece this morning about plans by the I.R.S. to turn over 12,500 tax deliquency cases to private collection agencies. There are two interesting features to this story. First, the I.R.S. believes that it will get less money by turning these cases over to private collection agencies than if it pursued the cases itself. (Well, someone has to help out the collection agencies -- life's tough out there.) The other interesting part of the story is that the I.R.S. is only turning over cases where the back taxes owed are less than $25,000. While this still amounts to a nice hunk of cheating (about 5 times the average cash TANF grant for a year), the industrial strength tax cheats will still not have to worry about annoying calls from bill collectors. --Dean Baker

Bad Inflation Numbers From BLS

A couple of days ago I commented in passing about the Bureau of Labor Statistics plans to change the way it reports its inflation numbers. I realize that I did not fully understand the issue until a couple of posts clarified the problem. Currently, BLS reports index numbers and changes only to the first decimal. Remarkably, it computes the monthly change based on index numbers rounded to the first decimal, even though it obviously has the data calculated to many decimals. This can lead to the monthly inflation figure being understated or overstated, depending on the rounding. For example, suppose the June index number is 202.050 (rounded to 202.1) and the July number is 202.249 (rounded to 202.2). The inflation rate calculated based on the three decimal index numbers is 0.0985 percent, which would be rounded to 0.1 percent in the monthly CPI report. The inflation based on the one decimal index numbers is 0.0495 percent, which is rounded to 0.0 percent in the monthly CPI report. In...

Media Use the Social Security Surplus to Hide the Budget Deficit

It is common for people to complain that politicians are using the Social Security surplus to hide the true size of the federal budget deficit. In fact, this is not possible. The media decide which budget numbers the public hears on the news and reads in the newspapers. If they believe that the appropriate deficit numbers include the money borrowed from Social Security, then it is a very simple matter to report this number, regardless of which deficit numbers politicians happen to use. Reporters don�t even have to do the simple arithmetic of adding two numbers together. Every official budget document shows the deficit including the money borrowed from Social Security (the �on-budget� deficit) right alongside the more commonly reported unified budget deficit. All the news reports on the new deficit projections from the Congressional Budget Office that I saw avoided any mention of the money borrowed from Social Security. For example, the deficit now projected for 2006 was reported as $...

Perverse Incentives in the U.S. Health Care System

Economists believe that people respond to incentives. Unfortunately, they pay much too little thought to the incentives that the U.S. health care system gives to providers. The NYT has two very good pieces showing the practical effect of the current incentive structure in today's paper. The first reports on the frequency of angioplasties in Elyria, Ohio. Doctors in Elyria use the procedure among Medicare beneficiaries at more than three times the average rate across the country. Why the high rate of angioplasties? They have a number of cardiologists that specialize in the procedure. This means that they are more likely to opt for angioplasties rather than trying drugs or open heart surgery, because they get paid to do angioplasties. The second article reports on a secret deal between Bristol-Meyers Squibb and a generic drug manufacturer to keep a generic version of Plavix (an anticlotting drug) off the market until 2011. This sort of bargain is exactly the sort of corruption that...

Free-Trade Ain�t What It Used to Be

USA Today had a great story about President Bush�s visit to a Harley-Davidson factor in York, Pennsylvania to tout the merits of �free-trade.� The reason why the story was so great is that the plant is in fact a testament to the effective use of protectionist policies to sustain a favored industry. Don�t take my word for it, here�s the beginning of a 1983 article in the New York Times describing President Reagan�s decision to impose tariffs on imported motorcycles: �In an unusually strong protectionist action, President Reagan today ordered a tenfold increase in tariffs for imported heavyweight motorcycles. The impact of Mr. Reagan's action, which followed the unanimous recommendation of his trade advisers, is effectively limited to Japanese manufacturers, which dominate every sector of the American motorcycle market. The action was exceptional for protecting a single American company, the Harley-Davidson Motor Company of Milwaukee, the sole surviving American maker of motorcycles ("U...

Premature Celebrations on Inflation

The press treated it as big news that inflation in the core CPI came in at 0.2 percent in July after being 0.3 percent in each of the prior 4 months. The celebration may be premature. While there is some evidence of easing price pressure in the data (lower medical care inflation stands out in this regard), most of the story in July's lower inflation was a 1.2 percent drop in apparel prices. Apparel prices are always erratic, and it is very unlikely that a drop of this size will be repeated. If we construct a non-apparel core CPI, here is what it would have shown since February: Feb -- 0.209 Mar -- 0.310 April -- 0.278 May -- 0.279 June -- 0.307 July -- 0.268 So, inflation is down by 0.04 pp from June but just 0.01 pp from April and May. Not much of a story here. Of course, those who really want to know about inflation read the CEPR price byte . BLS is going to start publishing the inflation numbers to 3 decimals beginning in January. This is a good move. -- Dean Baker