Beat the Press

NYT Deceives Readers on Thailand's GDP Growth

The headline told readers that: "Thailand GDP Grows 3.6% in the Fourth Quarter." How many readers knew that Thailand's economy had grown at an impressive 15.2 percent annual rate in the fourth quarter? Yes, the NYT once again reported a quarterly rate of growth. It is unlikely that many readers recognized that this was a quarterly rate, since it is customary to report GDP growth at annual rates in the United States. The reporter could have quickly converted the growth rate to an annual rate by taking 1.036 to the fourth power. --Dean Baker

S.F. Fed President Sees Brighter Jobs Picture

Except the NYT headline said the opposite: "President of San Francisco Fed Sees Slow Recovery, Especially in Jobs." According to the article, Janet Yellen, the President of the San Francisco Federal Reserve Bank, expects that the unemployment rate will fall to around 8.0 percent by the end of 2011. By contrast, both the Obama administration and the Congressional Budget Office project that the unemployment rate will average above 8.0 percent for 2012. In other words, Yellen is forecasting a somewhat brighter unemployment picture than is being used for budget analysis and other purposes. It is important that the public be made aware of how bleak the official projections for unemployment are. There can be no understanding of the importance of the case for additional job creation measures without a knowledge of the projected severity of the problem. --Dean Baker

Minnesota Governor Tim Pawlenty Doesn't Know Any Economics

It is appropriate for reporters to call attention to statements by politicians are that strange or wrong. Reporters had no problem going on at great length about then Senator Obama's reference to "bitter" white working class voters. In the same vein, the NYT should have pointed out that Minnesota governor Tim Pawlenty was not making sense when he complained about the stimulus package: “We’re going to take a dollar from you in the private sector, bring it into government, spin it around, take 5 to 20 percent for overhead, and redeploy it into the private economy and call that growth.” Of course the government is not taking money from the private sector. The stimulus cut taxes. The borrowing also did not pull money away from the private sector, banks have more than $800 billion in excess reserves and interest rates are at historically low levels. In other words, Pawlenty's comments indicated that he either didn't know what he was talking about or didn't care. The new story should have...

Robert Samuelson: Financial Meltdown Exposes Flaw in Welfare State

One might think that the mass unemployment caused by the collapse of the housing bubble might lead people to be concerned about restructuring the financial sector: not at the Washington Post. Robert Samuelson tells us that the meltdown shows that the welfare state is no longer viable. Actually, he has a pretty good case. With Goldman Sachs and the rest of the financial sector siphoning off an ever larger share of the country's output, we may not be able to afford much of anything in the future. If the financial sector's share grows at the same rate it has been growing over the last three decades, the rest of us will have to learn to get by on less. --Dean Baker

Thomas Friedman Competes for the Nobel in Ignorance

Thomas Friedman told readers that: "But now it feels as if we are entering a new era, 'where the great task of government and of leadership is going to be about taking things away from people,' said the Johns Hopkins University foreign policy expert Michael Mandelbaum." Unfortunately, Mr. Friedman apparently doesn't talk to anyone who has ever taken any economics. There are no serious forecasts that do not project that productivity will continue to grow for the indefinite future, and many project that productivity will grow at a more rapid pace than it did in the years from 1973-1995. This means that there is no reason, except incompetent economic management and/or the continuing upward redistribution of income, why the vast majority of the population should not experience improvements in living standards. This would mean an increase in both public and private services. --Dean Baker

It Is Not a Jobless Recovery, It is a Growthless Recovery

The NYT has a good article on how millions of workers are likely to face prolonged joblessness as a result of the current recession. The article implies that there has been a change in the relationship between economic growth and employment in recent decades as it has taken longer for the economy to recovery the jobs lost in the last two recessions than in prior recessions. While it has taken longer to recover the jobs lost in the downturn, this has nothing to do with a changed relationship between growth and jobs. The problem is simply that growth has been very weak. Here is the cumulative growth in the 8 quarters following the end of the last 5 recessions: 1970(IV)-1972(IV) -- 8.9% 1975(I)-1977(I) - 9.8% 1982(IV)-1984(IV) - 13.5% 1991(I)-1993(I) -- 6.0% 2001(IV)-2003(IV) -- 5.9% As can be seen the growth coming out of the last two downturns has been very weak by historical standards. Most projections show that the growth coming out of the current recession will be similarly weak. In...

Gold-Plated Garbage is Still Garbage: The Fund Managers' Tax Break

While tens of millions of ordinary workers pay taxes at a 25 percent marginal rate, many of Wall Street's highest paid dealmakers get to pay tax at just a 15 percent rate. They get this lower rate because of the special treatment of "carried interest," also known as the fund managers' tax break. The Washington Post has a piece about how the populists of the left and right can't seem to get the Senate to take away this special break for many of the richest of the rich. While the Post piece is useful in calling attention to the absurdity, that at this time of intense populist anger, this huge handout to the rich continues unchallenged, it implies that there is some rationale for the tax break. The basic logic of "carried interest" is extremely. Most fund managers get much of their pay on commission. In addition to getting a flat percentage of the funds being managed (typically 1-2 percent annually), they usually get paid a share of the fund's earnings, typically 15-20 percent. This...

Fed Exit Strategy? Where is the Article on the Fed Strategy for Full Employment?

The NYT has an analysis this morning of the Fed's "exit strategy" from its quantitative easing policy that was designed to support the economy after the collapse of the housing bubble. It seems that the Fed is pursuing an exit strategy, so it is reasonable for the NYT to report on the policy. However, this implies the Fed is also violating the law that governs its operation. The law requires it to pursue the goals of price stability and high employment, which is defined as 4.0 percent unemployment. The Fed's own projections show the unemployment rate remaining above 5.0 percent for the next 5 years. With no serious threat to price stability on the horizon (the core inflation rate has been falling), there is no obvious justification for the Fed's failure to more aggressively pursue expansionary policy. The NYT and the rest of the media should be running stories on the Fed's blatant violation of the law. --Dean Baker

Hungary, Which Was Saved by Not Being in the Euro, Lectures Greece on the Virtues of the Euro, and the NYT Doesn't Notice

Our greatest economic minds were too out to lunch to notice an $8 trillion housing bubble and it just keeps getting worse. The NYT tells us how Hungary is giving lectures to Greece about how it should just suck it up, cut its spending, and then celebrate the wonders of the euro, offering its own experience as a model. The headline of this piece should have been something like "Hungarian Premier Doesn't Understand Economics." While the euro may give Greeks or Hungarians the sense of security claimed by Gordon Bajnai, Hungary's prime minister, this sense of security is currently coming at a very great cost to Greece. Because Hungary was not on the euro, it was able to devalue its currency when the financial crisis hit in 2008. As a result, its current deficit fell from 8.4 percent of GDP in 2008 to 3.0 percent of GDP in 2009. This shift of 5 percentage points of GDP gave an enormous boost to Hungary's economy. It would be the equivalent of a $900 billion annual stimulus package in the...

Higher Unemployment Claims: Is Anyone Noticing?

The Labor Department reported an increase of 31,000 initial claims for unemployment insurance last week. The weekly data are always erratic, but there has been a clear upward movement since December numbers. The four-week average was 467,500, which is considerably higher than a level consistent with job growth (@400,000). Also, last week's numbers were almost certainly depressed by bad weather on the East Coast. Many people who would have otherwise filed claims were unable to get to unemployment offices as a result of snow storms. Therefore, we may expect a jump in the current week. The number of claims deserved far more attention than it received. --Dean Baker

Blinder Misses a Big Game of His Tax Credit Proposal

Alan Blinder did a pitch for a business tax credit for hiring new workers in the Post today. He briefly mentions some of the routes for gaming the credit, but misses the most obvious one for the credit as he has proposed it -- increasing hours. If firms can get a tax credit for higher payroll regardless of whether it is due to more workers or longer hours, then many firms will get the credit for the latter, rather than hiring workers. During the downturn, firms both laid off workers and shortened hours for their workforce. As the economy recovers firms will both add workers and increase hours. There is an obvious reason for the government to push firms to increase the number of workers on its payroll, which directly reduces unemployment. There is no reason for it to give incentives to increase hours rather than hire workers, as Blinder's tax credit does. The tax credit can also be gamed by bringing contract workers, such as custodians or kitchen staff, onto a firm's payroll. This will...

Why Is the Administration Trying to Maintain Bubble-Inflated House Prices

The Post reported on the administration's mortgage modification program. At one point it presents an estimate Credit Suisse on the number of foreclosures that would need to be prevented this year to stabilize house prices. (The article put Credit Suisse's estimate at 3.2 million. This is obviously wrong since that is close to twice the current pace of foreclosure.) This implies that stabilizing house prices at levels that are about 15 percent above trend is desirable. That is likely to create a situation in which current homebuyers see their house prices fall in subsequent years as house prices are finally allowed to adjust to deal with the excess supply. It is difficult to see why the government would want to pursue policies that would encourage people to pay too much for homes. --Dean Baker

Stock Returns: Current Prices Matter

The Washington Post reported on a new study from the Pew Center on the States which purportedly criticized state governments for making overly optimistic assumptions on stock returns in their pension fund investments: "On average, states predict they will see an 8 percent return every year from their investments in the markets. Meanwhile, the S&P 500, the broadest measure of stocks, fell more than 20 percent over the past decade. " Actually, the sharp decline in stock prices over the last decade makes 8 percent nominal returns far more plausible. The ratio of stock prices to trend earnings is now close to its long-term average of 14 to 1. This allows for a much higher dividend yield and if stock prices rise at the same rate as the economy is projected to grow, then it will easily reach the 8 percent return assumed by pension fund trustees. --Dean Baker

NYT Does Big-Time Cover Up for the Fed

The NYT told readers about a deal between the Senate and the Obama administration to establish a council of regulators that would have the responsibility of identifying systemic risk. It then adds that the council: "addresses one of the primary lessons of the near debacle: that no one had been assigned to ensure the stability of the system as a whole and detect the kinds of excessive risk-taking and imbalances that could rock an entire economy." This is not true. The Federal Reserve Board had the responsibility to prevent systemic risk and acted upon this authority when it considered it appropriate. The two most obvious examples were in 1987 when the Fed intervened to support the stock market and halt the crash and in 1998 when it intervened to arrange an orderly unraveling of the Long-Term Capital Hedge Fund. The Fed clearly understood that it had the responsibility to contain systemic risk. It just failed disastrously in carrying through with this responsibility during the years of...

If the Fed Had Done Its Job, the Deficit Would Be Much Lower

The NYT reported concerns expressed by regional Federal Reserve Bank presidents that large deficits could eventually lead to reduced Fed independence and higher inflation rates. It would have been worth pointing out that the deficits are very large at present only due to the fact that the economy is in a severe downturn? This downturn is in turn the direct result of the Fed's failure to rein in the housing bubble before it grew to dangerous levels. Readers should have been reminded of this fact to better assess the concerns of the Fed bank presidents. It is also worth noting that the bank presidents are appointed through a process dominated by the financial industry. This may make them independent from democratic control but not independent from the banks. --Dean Baker