Beat the Press

Bad European Growth Numbers in the NYT

Newspapers should try to report economic data in ways that are clear to their readers. That should not be a debatable point. The NYT badly failed in this task in an article on European economic growth. The headline told readers that "Economy Grows Nearly 1% in Europe." Before anyone bemoans poor European growth, it is important to realize that the 1.0 percent is a quarterly growth rate. In other words, Europe's economy grew by close to 1.0 percent in the second quarter of the year. This translates into close to a 4.0 percent annual rate. In the United States, growth is always reported as an annual rate. There is absolutely no excuse for a reporter (or an editor) not taking the 2 seconds needed to convert a quarterly rate into an annual rate. This is about as simple as it gets; the Times should not be reporting economic data in ways that might unnecessarily mislead readers. --Dean Baker

Is Europe Hiding Its Productivity?

The Wall Street Journal has an interesting piece today on how France Telecom is trying to set up its workers in their own business as a way of getting around restrictions on layoffs. The story itself is interesting -- it�s an innovative initiative that would seem to produce win/win outcomes. But the discussion also raises another serious question about excess labor in France and other countries with restrictive laws on layoffs. The article implies that much of France Telecom�s 120,000 workforce has been made unnecessary due to the rapid changes in technology over the last 15 years. In the United States, the old-line telephone companies have all had massive layoffs. In France, and most other European countries, employment protection laws prevent such large-scale dismissals so companies must retain workers even if they don�t need their labor. This could be one of the factors explaining the difference between European and U.S. productivity growth over the last decade. (Prior to 1996,...

Alan Greenspan and the Stock Bubble

The biggest sin that the Greenspan sainthood proponents must sweep under the rug is his failure to do anything about the stock market bubble. There are 3 questions here that the critics and worshippers must address: 1) Could it have been recognized? 2) Did it actually do the economy serious harm? 3) What could have been done? These questions are loosely touched on by a worshipper�s ((Daniel Drezner) review of a critic�s (Peter Hartcher) book in the Post book review section. The worshipper comes up seriously short in his assessment.

Hidden Housing Price Declines

As I mentioned in a prior note, house prices may be dropping in ways that are not picked up by price indices because the indices all use the contracted sale price. Currently sellers are using a variety of kickbacks that reduce the effective price below the sale price. Today's Washington Post has a good example. Centex, a major national builder, has a full-page ad (sorry ads don't appear in the web edition) offering mortgages at well below the market rate, plus closing cost assistance. (The difference on the 30-year is about 0.8 percentage points.) The ad also promises realtors a $5,000 bonus. So, on a $400,000 home, these incentives could easily come to 5 percent of the purchase price. So the next article on housing prices that doesn't mention kickbacks of this sort gets a special BTP goat prize. --Dean Baker

More "Entitlement" Nonsense at the Post

Yet again the Post reports on the threat posed by �entitlement� spending, referring to Social Security, Medicare, and Medicaid. To quickly repeat myself, this is dishonest. There are modest and manageable increases in projected Social Security spending due to the aging of the population. There are unmanageable projected increases in Medicare and Medicaid expenditures due to a projected explosion in health care costs. If the projected explosion in health care costs proves accurate, then it will devastate the economy, and cause serious budget problems. Honest people respond to these projections by examining ways to prevent the explosion in health care costs. Less honest people talk about the need to cut entitlement spending, including Social Security. Next month we start a new fundraising vehicle for CEPR. We want people to pledge a certain amount (e.g. 5 cents, 50 cents, etc.) for every time the Post runs an article/column warning about entitlement spending (: -- Dean Baker

Wrong Experts on Inflation and Unemployment

The Times had an article examining the prospects of the Fed being able to successfully bring down the inflation rate, without also inducing a recession. While it is a thoughtful piece, the two experts whose views dominate the article, Robert Gordon and Lawrence Meyer, have the distinction of having been proven completely wrong on this topic by the events of the nineties. Both were prominent inflation hawks in the mid/late nineties, arguing that low unemployment would trigger an outbreak of accelerating inflation. In fact, Meyer, who was a Fed governor at the time, led an unsuccessful campaign to force Greenspan to raise interest rates to slow the economy and raise the unemployment rate. Of course, the unemployment rate continued to fall through the late nineties, and there was no noticeable uptick in the inflation rate for most of the decade. This failure doesn�t mean that Gordon and Meyer�s views should be ignored, both have done extensive research on this topic. But, given the track...

Trade Deficits and Living Standards

The modest drop reported in the trade deficit in June is good news, the current deficit is unsustainable. A declining trade deficit will also help to boost economic growth, as noted in a Times article this morning. However, the article missed an important part of the story. Growth due to a declining trade deficit does not directly translate into improving living standards in the United States. For example, if the economy grows 3 percent next year, but 2 percentage points of this growth is due to a falling trade deficit, then domestic demand (consumption, investment, and government spending) can only increase by 1 percent. If employment grows by 1 percent (a modest 1.4 million rate of job creation), this means that wages, on average, do not rise. In short, a declining trade deficit has the same effect on living standards as a tax increase; we will be able to see less of what we produce. This �tax increase� will come in the form of rising import prices, which will add to inflation, or...

What Do Plunging Mortgage Applications Mean?

It could mean less demand in the housing market. The Mortgage Bankers Association released the results of its weekly mortgage applications survey yesterday. While the weekly number for purchase mortgages was up slightly, the 4-week moving average was down and now stands more than 20 percent below its peaks last year. The refinance index is down by more than 50 percent. (The survey covers approximately 50 of mortgage originations.) Remarkably, this important and timely data on the housing market appear to have been ignored in the NYT, WSJ, and Washington Post . --Dean Baker

Mortgage Rates Will Stay Low, Why?

With the housing market clearly in a slump, the New York Times had a piece this morning asking how fast the housing market is heading down. In presenting the case for a gradual and limited decline the article asserts that �mortgage rates are still relatively low and look to stay well below rates common in the past.� Mortgage rates certainly are still relatively low, but the question is why we would expect that they would stay low? Do the projections for large budget deficits convince us that interest rates will stay low? Maybe the fact that inflation is at its highest level since 1990 makes people believe that mortgage rates will stay low. Perhaps the record U.S. trade deficit, which will push the dollar down in the years ahead, is the reason that we expect low interest rates. After all, investors are always willing to sacrifice returns if they get to hold a currency that is falling in value. In short, all the factors that economists ordinarily believe affect interest rates point to...

The Joe Lieberman Nobody Knows

Obviously Joe Lieberman was defeated because of the war. Three term incumbents don�t lose primaries because of their personal peccadilloes. But there is a side to Joe Lieberman that very few people are familiar with. Joe Lieberman played an important role in laying the basis for the accounting scandals of the stock bubble era.

The Problems of Public Pensions

Mary Williams Walsh has a nice piece on the unbooked libailities of public sector pension funds in today's NYT. Supporters of defined benefit pensions and public sector provision of public services are not helping the cause when they ignore bad accounting.

More Evidence of a Bursting Housing Bubble

New data from the Fed show that credit card debt rose at a 9.8 percent annual rate in June after increasing at an 11.0 percent rate in May. This extraordinary two-month rise is consistent with the story that homeowners are finding it increasingly difficult to borrow against their home � presumably because prices are no longer rising. If you need to borrow, and borrowing against the home is not an option, credit cards may be the next best alternative. A sidebar on home prices: all of our standard house price series use contracted sales prices to measure price changes. This could be leading to an overstatement of current prices, and therefore concealing price declines. The reason is that in many bubble areas it has become common for sellers to offer various inducements � for new homes, builders offer free additions/alterations. For existing homes, sellers offer help on closing fees, one-year of condo fees, etc. Check the real estate listing to get a sense of what�s being offered in your...

Economic Malpractice at the Financial Times

In case you thought that the United States had a monopoly on bad economic reporting, the Financial Times is out to prove you wrong. In a column this morning, Lex sought to show that an increase in the value of the Renminbi will not necessarily lead to a decline in the U.S. trade deficit with China. The evidence is a chart showing that the large rise in the euro against the dollar since 2001 has actually been associated with an increase in the U.S. trade deficit with Europe. What�s wrong with this story? Simple, the large rise in the euro since 2001 followed a large decline prior to 2001. The euro was born in 1999 at a value of approximately 1.17 dollars to the euro. Its current value is just over 1.25 dollars to the euro. Since inflation in the euro zone has averaged approximately 1.0 percentage point less annually then in the U.S., the real value of the euro against the dollar today is approximately the same as it was in 1999. Trade does not adjust immediately to changes in currency...

U.S. Health Care and Long-Term Deficit Scare Stories

My earlier comments about the how projections of rising health care costs are driving the horror stories about the long-term deficits prompted a number of comments. I will make a few quick points by way of response. First, my claims about the poor quality and outrageous cost of the U.S. health care are based on OECD data on life expectancy and cost . While some people have noted that this data is not strictly comparable across countries, it is the best data available (I�m open to suggestions, if someone has another source.) I will also point out that the deterioration can be seen by simply examining the change through time. In the early seventies, the U.S. did not have the most expensive health care system, and it had near the longest life expectancy in these data. It now has by far the most expensive system and ranks at the bottom among rich countries in terms of life expectancy. There can be little doubt that the quality of the U.S. health care system has deteriorated hugely over...

Job Numbers for Nerds (and Good Reporters)

As has been widely reported, the July job numbers came in somewhat weaker than expected, with job growth of just 113,000. This is the fourth consecutive month in which job growth has hovered near 100,000. However, the actual picture may be somewhat worse than the official data show. The reason is that the Bureau of Labor Statistics (BLS) may be imputing too many jobs into the survey for new firms that are not included in their sample.