Beat the Press

Buying and Selling a Home Does not Strengthen the Housing Market

In a measure of ungodly stupidity Congress extended the first-time homebuyers' tax credit to existing homeowners. Somehow, it didn't occur to them that if someone sells their home to buy a new one it does not provide a net boost to the housing market. (One more home is purchased, one more home is put up for sale.) Somehow this simple logical point escaped the reporters who cover the issue as well, as they are still waiting for the credit to provide a lift to the housing market. --Dean Baker

The NYT Interupts the Europe Bashing to Complain that Germany is Too Competitive

There is an ongoing refrain in economic reporting that the European welfare state is an outmoded relic that is dragging Europe into an economic abyss. It's a very compelling tune, since it gets repeated endlessly by "experts" who pretend to know what they are talking about. The only problem is that there isn't really any evidence to support the story. By most standard economic measures Europe is doing about as well as the United States. On the most basic measure of economic prowess, productivity, Western Europe is pretty comparable to the United States with some countries, like France, actually reporting somewhat higher levels of productivity. But that story rarely finds its way into media coverage of Europe. That is why it is amusing to see a major NYT story complaining that Germany exports too much. Yes, that would be Germany, the country with a generous welfare state, 5 weeks of paid vacation every year, strong unions, and all those pesky regulations that are supposed to make it...

The Washington Post Invents a Chinese Demographic Crisis

The Washington Post (a.k.a. Fox on 15th Street) is once again touting the "demographic crisis" shtick, this time in reference to China. The Post tells readers that China faces a "looming demographic crisis" that: "it is going to be the first nation in the world to grow old before it gets rich. By the middle of this century the percentage of its population above age 60 will be higher than in the United States, and more than 100 million Chinese will be older than 80." Fans of arithmetic are no doubt saying "huh?" Since we use arithmetic at Beat the Press , even if it is shunned at the Post, let's look at this one a bit more closely. In China, per capita income has been growing at a 9.0 percent annual rate over the last decade. Let's say that this extraordinary growth rate slows to an average of 5.0 percent annually over the next three decades. This means that per capita income in China will be on average 4.3 times as high as it is today. Let's assume that wage growth increases in step...

Fourth Quarter Final Demand Growth Revised Down to 1.9 Percent

The reporting on the revisions to fourth quarter GDP noted that the growth rate was revised up from 5.7 percent to 5.9 percent. However, this increase was attributable to revisions to the rate of inventory accumulation (actually slower de- accumulation). The rate of final demand growth was actually revised down from 2.2 percent to 1.9 percent. This bad news went largely unnoticed. --Dean Baker

NYT Should Rely on Experts Who Are Not Employed by J.P. Morgan

The NYT reports that strong demand is causing wages to rise rapidly in China. While the article describes this as a "labor shortage," this is actually a normal process in a growing economy. Workers move from less productive sectors to more productive sectors. Firms that cannot afford to pay the market wage go out of business. At the end of the article, the NYT notes that China may revalue the yuan as one mechanism for offsetting the inflation caused by the rise in wages. It then cites Jing Ulrich, the chairwoman of China equities and commodities at J. P. Morgan: "Letting wages rise benefits workers, ... letting the currency rise benefits currency speculators." Actually, workers would benefit from a rise in the yuan also, since they would be able to buy imported goods at lower prices. However, letting the currency rise would make J.P. Morgan a relatively weaker actor in China since most of its assets are in dollars. These dollars would be worth less in China if the yuan rose in value...

Fannie Mae's Loss is the Bankers' Gain

Fannie Mae and its sister institution Freddie Mac buy mortgages from banks. That is what they do. This means that when Fannie and Freddie lose money, they paid banks too much money for the mortgages. This point should be so simple that even an economist could understand it. This is why it is disturbing when news articles on Fannie's newly announced loss of $15 billion in the last quarter don't point out that this is money given to banks. The key issue is whether Fannie and Freddie's losses are due to mortgages and mortgage-backed securities purchased prior to their takeover in September of 2008 or whether they are the result of mortgages purchases subsequent to that date. If the latter is the case then the Treasury Department is effectively using Fannie and Freddie to run a TARP program, purchasing mortgages from banks at above market prices. This amounts to a huge taxpayer subsidy to Jamie Dimon, Lloyd Blankfein and our other favorite bankers. --Dean Baker

Existing Home Sales Fall and the Post Finds Yet More Surprised Economists

It seems that being surprised by the economy is a requirement for an economist to be a source for the Washington Post. The first sentence of a Post article on January existing home sales and GDP revisions told readers that: "Sales of previously owned houses unexpectedly slumped in January." The main surprised economist featured in the article was Lawrence Yun, the chief economist of the National Association of Realtors. Of course economists who follow the housing market more closely were not surprised . The plunge in mortgage applications following the initial expiration of the first time homebuyers tax credit in November indicated that sales of new and existing homes was likely to fall. --Dean Baker

Washington Post Spreads Misinformation About Climate Change Regulations

It is not the job of reporters to just report what partisans to debates say about events. The vast majority of readers do not have the time and background to assess competing claims. When one party says something that is not true, the news is that this person is lying, not their lie. Therefore when the Post told readers that Michael Morris, the chief executive of American Electric Power said that cap and dividend rules "would take money from 'mom in the Midwest and dividend it to Paris Hilton,'" it was not engaged in serious reporting. The bills being considered would tax carbon emissions and dividend them to low and moderate income families so that they are largely protected from price increases. Unless Paris Hilton loses her inherited wealth, she would not be a recipient of this money. The Post should have reported that the chief executive of American Electric Power felt the need to make things up to advance his case against restricting greenhouse gas emissions. Most readers of this...

NPR Gives Nonsense on Financial Markets

NPR gave us classic financial markets as sports event reporting this morning, pointing out how the markets moved on the words spoken by Federal Reserve Board chairman Ben Bernanke. The correct response to these moment by moment movements should be: "who gives a damn?" There are a small number of rich speculators who stand to make or lose large amounts of money on these movements, just as people at racing tracks stand to make or lose money depending on the outcome of horse races. For the vast majority of people in the country (including the vast majority of NPR's relatively affluent listeners), the hour to hour or even day to day movement of the financial markets have no consequence. Even over the longer-term the consequences are ambiguous. Financial markets first and foremost involve redistribution. If the stock market rises relative to GDP, then it means that people who own stock gain at the expense of people who don't. One aspect of this piece that is especially striking was the...

High Unemployment Claims: More Surprised Economists

The number of unemployment claims filed last week jumped by 22,000 from the prior week. USA Today told readers that analysts expected that claims would fall by 19,000. It is hard to understand why anyone who analyzes economic data for a living would have expected unemployment claims to fall from the prior week. In that week heavy snowstorms on the East Coast had made it difficult for many workers to get to unemployment insurance offices and in some cases even forced their closing. It should have been obvious that claims would jump last week as people prevented by the weather from filing earlier would turn up last week. That is why the relatively high level of claims reported two weeks ago should have been given more attention . --Dean Baker

Washington Post Finds More "Surprised" Economists

The headline of a Washington Post article told readers: "Economists surprised as new-home sales fall to lowest level in nearly 50 years." The first sentence explained: "sales of newly built homes unexpectedly plummeted in January to their lowest level in nearly five decades, providing more evidence of the housing market's fragility." Actually, economists who understand the housing market were not at all surprised by the data. The Post should try to rely on sources who know about the topics on which they are supposed to be experts. During the years of the run-up of the housing bubble the Post's main source on the housing market was David Lereah, the chief economist of the National Association of Realtors and the author of the book, Why the Real Estate Boom Will Not Bust and How You Can Profit From It . --Dean Baker

Inventing Job Creation Numbers

The WSJ told readers that Democratic senators claimed that the employment tax credit in a job bill passed by the Senate would create 1.3 million jobs. It then added: "but some independent economists said they expected it would have less impact than that." It would be surprising if any independent economists believed the tax credit would create even one-tenth this many jobs. Every month, roughly four million workers leave or lose their job. Employers hire roughly 4 million workers to replace these workers. (The job growth/loss number reported every month is a net figure, which is the result of this massive churning.) The vast majority of the 4 million workers who are already being hired every month would qualify for the Senate's tax credit. This means that the overwhelming majority of the money would be paid out to firms that are hiring anyhow. Since the incentive provided by the credit is small, there is little reason to believe that it will have any noticeable effect on employment...

The Government Pays More Money to Peter Peterson and Other Rich Investment Bankers than to Poor Chidren

The NYT had another blogpost complaining that the government pays more money to rich investment bankers like Peter Peterson than it does to poor children. Actually, the column didn't mention how much money rich investment bankers get from the government in the form of interest payments on the government bonds that most of them hold, instead it complained about the money that retirees collect in the form of Social Security and Medicare payments. Of course, it would be foolish to compare the money that rich investment bankers get in interest payments on money they have lent to the government with the pure transfer payments that the government makes to ensure that poor children have a decent chance in life. But, it is also foolish to compare the retirement benefits that seniors have largely paid for during their working life, through Social Security and Medicare taxes, with the pure transfer payments that the government makes to ensure that poor children have a decent chance in life. But...

Is President Obama's Commission Our Only Protection Against Fiscal Calamity?

Some folks at the NYT seem to think so. The paper published a blogpost telling readers: "Mr. Obama has directed the commission to recommend by Dec. 1 how to balance the budget by the fiscal year 2015, not counting interest payments on the debt, as well as to propose long-term changes in revenues and entitlement programs to avert fiscal calamity." I wonder if the words "fiscal calamity" appear in the formal charge of the commission? As always, those who follow the news know that the real story is health care, health care and health care , which is why serious people focus on fixing the country's health care system. --Dean Baker

Bank Loan Program Is Another Subsidy to Banks

The Obama administration has proposed a new program that would give $30 billion to banks at below market interest rates. The Post briefly discusses the merits of this program , noting that many businesses are not borrowing because they don't have demand for their product, however the article does not include the views of anyone who makes the obvious point: this is another subsidy to the banking industry. While the beneficiaries of this subsidy will be relatively smaller banks (assets of less than $10 billion), many voters may be troubled by the prospect of giving yet more subsidies to the financial industry. --Dean Baker