Beat the Press

More Europe Bashing

The NYT notes the recent decline in the euro and points out some of the negative economic effects (e.g. higher oil prices), then tells readers: "more important, there is a queasy feeling that the decline of the euro makes an uncomfortable statement about Europe’s chronic tendency to underperform the United States in economic growth." Hmmm, "there is a queasy feeling." Where does one find this queasy feeling? The NYT quotes the chief executive of a German health care company who seems to feel somewhat queasy, but that is the only evidence presented in an article with the headline: "ailing Euro Seen as a Signal of Deeper Woes on Continent." They may have overstated their case somewhat. --Dean Baker

The Fed Controls the Consumer Protection Agency's Budget

At this point people are still combing through the fine print of Senator Dodd's financial reform bill to determine all its ramifications, however one point is very clear in assessing the independence of the new Consumer Financial Products Protection Agency. The Fed will have control over the agency's budget. This means that if the Fed believes that the agency is causing too much trouble to the financial industry, it would have the power to squeeze its budget so that it would become less troublesome. It is also worth noting in this context that the Fed sets its own budget. (It gets its money the old-fashioned way: it prints it.) Every year the Fed sends a budget showing its major budget lines to Congress. This is purely informational, Congress does not approve the budget. Given the way Dodd proposes to set it up, if the Fed were to decide to squeeze the new agency Congress would have no immediate recourse. This fact should be mentioned in news coverage of the issue. --Dean Baker

Manufacturing Output: Which Way Is Up?

The Post article on the Fed's monthly industrial production report told readers that "February's numbers gave economists other signs that manufacturing would continue to recover this spring, as the capacity utilization -- portion of plants used for production -- climbed to 72.7 percent from 72.5 percent." Umm no, that's not quite right. Overall industrial production did rise, but that was due to increases in mining and utility output. Manufacturing output actually fell by 0.1 percent in February from a level that was revised down by 0.1 percent from its previously reported level. Capacity utilization in manufacturing fell from 69.1 percent in January (previously reported as 69.2 percent) to 69.0 percent. This decline was undoubtedly in part attributable to bad weather, but the Fed's data certainly is not pointing towards an uptick in manufacturing. --Dean Baker

Job Growth: Morning Edition Makes the Consensus the Dissenting Opinion

The projections from the Fed, the Congressional Budget Office and the Obama administration all show the unemployment rate remaining unusually high for years into the future. This may cause listeners to wonder how the pessimistic view of employment growth from Lawrence Mishel, the president of the Economic Policy Institute (my former boss), became the " dissenting opinion ." --Dean Baker

Pension Fund Cashes in Treasury Bonds: AP Screams "Crisis"

Okay, it's not exactly a pension fund, it's the Social Security trust fund that is cashing in some of the government bonds that it holds to pay benefits. This is the way the trust fund was designed to work, but AP somehow cannot find a reporter (or editor) who understands even the most basic facts about Social Security or for that matter Treasury bonds, which get called "IOUs" in the headline and four times in the article. (When GE has its next bond issue, will AP report on the auction of "GE IOUs?") The whole purpose of building up the trust fund was to help defray the cost of the retirement of the baby boom cohort. This meant that at some point it would be necessary to sell some of the bonds to pay benefits. This has happened somewhat sooner than had previously been predicted due to the economic crisis created by inept policy and Wall Street corruption. It is not clear why anyone should see this as a crisis for Social Security. The article also includes this non-sequitur: "Now the...

NYT Spreads Nonsense on China Buying U.S. Debt

The NYT told readers that: "China is the biggest buyer of Treasury bonds at a time when the United States has record budget deficits and needs China to keep buying those bonds to finance American debt." Nope, this is nonsense. People can get the real story from today's Krugman column , China has an unloaded water pistol pointed at our heads. --Dean Baker

Krugman on China and the Dollar

Paul Krugman is absolutely right in describing the economic relationship between the U.S. and China ; the United States has nothing to fear from a decision by China to stop buying U.S. government debt. However, the discussion of the U.S-China relationship may not be quite right. Krugman has the United States meekly asking China to raise the value of the yuan since 2003, with little effect. This certainly has been the public position of both the Bush and Obama administrations. However, negotiations don't take place in public. When the United States negotiates with China, there are many items on its list. Both the Bush and Obama administrations have pressed China about increased protection for U.S. patents and copyrights. They have pressed China for increased access for U.S. films and openings for the entertainment industry more generally. They also want to open the Chinese market to Citigroup, Goldman Sachs and other big financial firms. No one ever expects to get everything on their...

The Post Is Terrified That Japan Will Become Less Crowded

Japan is an extremely densely populated country. Because of its low birth rate and immigration rate, it is likely to become less crowded in the future. While most normal people would probably consider this a positive development, the Washington Post ran an Outlook piece expressing horror at this prospect. The headline tells readers that: "even as population shrinks, Japan remains wary of immigration." It goes on to warn of a "demographic crisis," telling readers that: "The population is aging and shrinking -- a formula for economic calamity and social stagnation. Over time, there will be too few workers to care for the millions of elderly citizens, grow food on farms or fill the manufacturing jobs that drive this export-led economy." Those who have taken an intro economics class know that there are no special economic problems created by a declining population. See, it is not necessary to grow food on farms if a declining population needs less food. It is not necessary to "fill the...

The New York Times Doesn't Like Social Security

That is what readers could infer from Jackie Calmes' blognote in which she listed Social Security alongside Medicare and Medicaid as "fast-growing entitlement benefit program." Social Security is projected to grow at a 5.3 percent annual rate over the next decade, only slightly faster than the 4.4 percent projected growth rate of nominal GDP over this period. By comparison, Medicare is projected to grow at a 7.0 percent annual rate. It is also worth noting that Social Security is funded by a designated tax that is projected to keep the program fully funded until 2044. It appears that the NYT is unaware of the funding mechanism for Social Security. Given this designated tax it would make as much sense to cut Social Security as it would to cut interest payment on government bonds (i.e. default on the government debt), especially since interest is in fact a much more rapidly growing category of entitlement spending. The reference to Social Security appears in a statement telling readers...

Wrong Surprise on Retail Sales

The media reported on a 0.3 percent rise in retail sales in February, which was described as a surprisingly strong result compared with the consensus expectation of a 0.2 percent decline. However, the news was not as good as this may appear, since January's sales data was revised down by 0.4 percent. In other words, the sales volume reported for February was almost exactly in line with the consensus estimate, even though the January number is less than had previously been believed. (There does appear to be some upward movement in non-auto sales.) --Dean Baker

The Dollar, the Deficit, and Accounting Identities

It would be great if people who reported on the budget deficit for major news outlets could be required to know the basic accounting identities that get taught in every introductory economics class. The key one that almost none of them seem to know is that the trade deficit (X-M) is equal to the sum of public and private savings (T-G)+(S-I). This identity means that if the United States is running a trade deficit, then the sum of public and private savings must also be negative. That has to be true -- it is an identity. It's just like 2 + 2 = 4. It is always true. This matters for all the nutty deficit hysteria because no one every asks the deficit hawks how they would like to see the identity met. The U.S. has a large trade deficit because of the value of the dollar. At a given level of GDP, the main determinant of the trade deficit is the value of the dollar. Politicians and even many economists like to hyperventilate about "competitiveness" and talk about how we're going to improve...

Post Pulls Out the Stops In Pushing Its Trade Agenda

The Washington Post is a huge supporter of trade agreements like NAFTA that put non-college educated workers in direct competition with low-paid workers in the developing world, while largely protecting the most highly educated workers like doctors and lawyers. They push this selective protectionism by calling it "free trade." They also call anyone who disagrees with their agenda of selective protectionism, which is designed to redistribute income upward, a protectionist. The paper really outdid itself today with a front page editorial that used the term "free trade" in the headline and 7 other times in a 900 word article. --Dean Baker

The Washington Post Is STILL Missing the Housing Bubble

The Post had a front page article with a headline warning readers that a "new round of foreclosures threatens housing market." Yes, well actually a huge oversupply of housing created by the bubble-driven construction boom is virtually certain to push prices back down to their trend level. This one really is not hard. Nationwide, inflation-adjusted house prices rose by more than 70 percent during the bubble. Over the hundred years from 1896 to 1996 they had just kept pace with the rate of inflation. Prices must fall by another 15 percent or so to get back to their long-term trend. Given this departure from long-term trends, and the continued massive oversupply of housing as measured by record vacancy rates, it would be very surprising if house prices stabilized at their current level. Another wave of foreclosures will be a factor depressing prices -- and could cause prices to overshoot on the downside -- but prices would be virtually certain to fall further in any case. The Post...

NYT Joins Efforts to Scare Public About the Size of Government Debt

Peter Peterson, the billionaire Wall Street investment banker, is devoting more than $1 billion to a campaign to whip up fears about budget deficits in order to force cuts in Social Security and Medicare. It almost looks as though the NYT has joined the effort. It printed an article today that uses a measure of government debt that is explicitly designed to be misleading. The article reports on the debt of Greece, but then adds in a discussion of the debts of other countries, including the United States. The calculations are misleading because they compare future obligations over many decades to the current year's GDP. The honest way to do this calculation is to compare future obligations to projected GDP over the time horizon in which these obligations will be met. However, this calculation would produce a much lower ratio. (The debt in the case of the U.S. would be around 6 percent of GDP.) It is also worth noting that in the case of the United States, the vast majority of the...

Judd Gregg Argues for Higher Unemployment

The Washington Post reports that Senator Gregg does not know why the government is spending money to create jobs. According to the Post, Mr. Gregg said of a jobs bill: "Why do we keep doing this? .... Why do we keep passing debt on to our children? Why do we keep running program after program out here that is shrouded in sweetness and light but not paid for?" As every economist knows, the point of spending money in a downturn is to boost the economy and create jobs. If we raised taxes to pay for the spending then the spending would provide a much smaller boost to the economy. It would have been worth pointing out to readers that Mr. Gregg apparently has no knowledge of economics and is supporting policies that raise unemployment. The statements from Senator Gregg, about issues that directly affect the lives of millions of people, are far more worthy than other comments that the Post and other media outlets have opted to highlight, such as then Senator Obama's use of the word "bitter"...

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