Beat the Press

Fannie and Freddie's Losses Are Profits at Goldman Sachs

In a discussion of the future of Fannie Mae and Freddie Mac the Washington Post noted that the government had committed $125 billion to cover their losses. While the article reports that these losses have been a major political issue, it would have been useful to point out that the losses were, in effect, subsidies to banks.

Fannie Mae and Freddie Mac buy mortgages in the secondary market. If they lose money it means that they paid banks more for these mortgages than they were worth. This overpayment is effectively a subsidy to banks who otherwise would have been left holding the mortgages on their books and likely would have incurred losses when they went bad.

Eliminating Waste in Student Loans: Jobs at Risk

The NYT reports that opponents of a measure that would save money by putting private lenders out of the government guaranteed student loan business warn that it could cost jobs. This is of course true.

Suppose there is an efficient computer company that sells computers for $500 each and an inefficient computer company that sell comparable computers for $1,000 each. It is likely that the inefficient computer company employs more workers for each computer produced than the efficient manufacturer. Therefore switching orders from the less efficient company to the more efficient company would cost jobs.

Protectionists Dominate Health Care Debate

Anyone seriously interested in controlling health care costs would be actively discussing alternatives to patent protection for financing the development of prescription drugs and medical equipment. Everyone who has taken even an intro economics class knows that there will be horrible waste and corruption when goods can sell for hundreds of times their competitive market price, as can be the case with prescription drugs and medical equipment. Those interested in controlling costs would also be actively seeking to promote international trade in medical services since the health care systems in other countries are so much more efficient than the U.S. system.

High Unemployment Is Due to Skills Mismatch: We've Heard This Before

The NYT reports that the Fed is debating whether much of current unemployment is due to a skills mismatch between workers and the available jobs as opposed to simply a cyclical shortfall in demand. It is worth noting that the assertion of skills mismatch is a predictable behavior of economists in policy positions in every recession. There were many papers arguing exactly this story after the last downturn as the economy continued to shed jobs for almost two years after the recession ended.

--Dean Baker

NPR Still Hasn't Heard About the Housing Bubble

Morning Edition introduced an interview with George Soros by saying that the United States is still recovering from a financial meltdown. This is wrong. The reason that we have near double-digit unemployment is that we had an $8 trillion housing bubble that collapsed. The financial crisis was secondary.

This is best demonstrated by countries like Spain. Even though it has a relatively well-regulated financial system, and therefore did not have a financial crisis, its unemployment rate is 19 percent. Spain's problem was that it had a horrific housing bubble. It is not easy for an economy to recover from the distortions created by such asset bubbles.

NPR missed the bubble as it grew. It apparently still does not recognize what has happened to the economy.

NYT Wastes Readers' Time In Article on Global Warming and China and India

The NYT reported that China and India both signed an agreement to limit their greenhouse gas emissions. The article cites unnamed analysts who complained that the new commitment by China and India falls short of the terms of the agreement.

Good News: Job Openings In January Almost Up to February 2009 Level

Yep, the good news according to the headline of the USA Today article is that the Bureau of Labor Statistics reported that job openings in January were at their highest level since last February of 2009. That would be the month when the economy lost 726,000 jobs.

The numbers are going in the right direction -- it's good to see the number of job openings increase. And the number of layoffs and discharges fell to 1,890,000, the lowest level since April of 2008, a month when the economy shed 149,000 jobs. But we still have a long way to go before we are going to see healthy job growth. These numbers must be put in context.

--Dean Baker

The Post Give Dana Milbank an Opportunity to Show That He Knows Zero Economics

Those who favor affirmative action for people with no discernible skills undoubtedly appreciate Dana Milbank's page 2 column in the Washington Post. Today Mr. Milbank used his column to tell the world that he knows absolutely nothing about economics.

The theme of the piece was that in ten years the United States will be like Greece. He discusses the trip to the United States of Greek Prime Minister George Papandreou seeking support for his country during its current fiscal crisis and tells readers: "if current trends persist, an American president will be doing the same thing in about 10 years."

What Is "Heavy Investment" in Education, Clean Energy and Scientific Research?

In an article about the increasing number of people receiving long-term unemployment benefits the Post told readers that to have a labor force suited for the jobs of the future: "the Obama administration has tried to address that by investing heavily in education, clean energy and scientific research."
Actually, the Obama administration's investments in education almost certainly don't even offset the state and local cuts in spending forced by the recession. Its heavy investment in clean energy and scientific research is dwarfed by its spending on the war in Afghanistan.

--Dean Baker

Instant Lie Detector Test: Small Business Hiring Delayed by Uncertainty

There is a line being pushed by some on the right (e.g. David Brooks today) that small businesses are putting off hiring because of uncertainty over the costs they may face from health care reform, global warming restrictions, or other tax and regulatory changes.

It is understandable that small businesses would be reluctant to commit themselves to having another employee on the payroll if we were in a country like Italy or Spain where permanent employees have a substantial degree of employment protection. Employers in these countries (and most other wealthy countries) cannot simply lay off workers any time they choose.

WSJ Gets Carried Away With Optimism on Jobs

I was one of the economists who thought the February jobs report was relatively good given the weather. Still, that was only compared with an expectation of a very bad report. The WSJ went a bit overboard with a headline: "Outlook Brightens for Jobless."

Will Millennials Suffer Because Retirements Create Job Openings for Them?

Robert Samuelson argues that they will. Samuelson apparently believes that people's standard of living is determined only by their tax bill. According to Samuelson's world view, Bill Gates is much worse off than the typical middle class family because he pays so much more in taxes.

Of course in real world land, well-being is determined by after-tax income. The greater sum that Bill Gates pays in taxes is trivial compared to his enormous income.

Car Complaints by Company: Bad Numbers at the NYT

The NYT has a piece discussing efforts by Ford and GM to improve their quality. There is a chart accompanying the article showing the trend in complaints for the three automakers over the last decade. It shows a sharp drop in complaints by model year for both Ford and GM, while the numbers for Toyota remain almost flat.

The picture is somewhat distorted since it doesn't take account of sales. GM and Fords sales both fell by roughly one-third over this period, while Toyota's doubled. This means that Toyota also saw a sharp fall in complaints per vehicle, while the declines on a per vehicle basis for Ford and GM are not as steep as indicated by the graph.

Missing the Story on Iceland: Can the Bankers Steal Your Kids' Money

The NYT's piece on Iceland's referendum on using public money to pay debts to foreign bank depositors failed to explain the real issues involved. During the boom, several Icelandic banks courted deposits outside the country, mostly in the UK and the Netherlands, by offering higher interest rates. The banks then used these deposits to finance a range of highly speculative investments.

How Does Being "Anti-Free Trade" Distinguish Anyone in Congress?

Just about every member of Congress supports protecting one or more domestic industries from foreign competition. For example, no member has publicly endorsed opening up our health care system to greater international competition.

Therefore, describing a member of Congress as "anti-free trade" is misleading since the description would apply to every member of Congress. In describing Representative Sander Levin, the interim chair of the House Ways and Means Committee, as "anti-free trade," the Post just means that he is opposed to trade measures that it supports.

--Dean Baker

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