Beat the Press

NYT Invents "Broad Agreement" About Budget Problem

The NYT ran a front page article today claiming a "broad agreement broad agreement among critics about Exhibit A: The unwillingness of the two parties to compromise to control a national debt that is rising to dangerous heights." The article presents no evidence to suggest a broad agreement of any sort among critics, nor does it point out that every one of the "experts" cited failed to warn of the housing bubble, the collapse of which is projected to add close to $4 trillion to the national debt. The article then throws in the utterly absurd statement: "After decades of warnings that budgetary profligacy, escalating health care costs and an aging population would lead to a day of fiscal reckoning, economists and the nation’s foreign creditors say that moment is approaching faster than expected, hastened by a deep recession that cost trillions of dollars in lost tax revenues and higher spending for safety-net programs." The government has small deficits and then surpluses through the...

Japan as #2: It Isn't

USA Today told readers that Japan is hanging on for now as the world's second largest economy, ahead of China. This is just silly. While Japan does still rank second when its GDP is measured using a currency conversion standard (converting its currency into dollars at the current exchange rate), its economy is only half the size of China's using a purchasing power parity standard. This measure applies the same set of prices to all goods and services. In a wide range of categories China's output already exceeds that of the United States. It has more Internet users, twice as many cell phone users, produces almost ten times as much steel, and generates more college graduates with science and engineering degrees. It also has by far the largest accumulation of foreign reserves in the world. Anyone who thinks that China's economy is still smaller than Japan's badly underestimates its importance in the world. --Dean Baker

David Brooks Goes for Nobel in Victim Blaming

We are looking at a prolonged period of high unemployment because economists with degrees from places like Harvard and M.I.T. could not see an $8 trillion housing bubble. The economics reporters who work for outlets like the New York Times, National Public Radio, and the Wall Street Journal all lacked the ability to think independently and largely accepted at face value the assertions from the well-respected economists that there was no problem in the housing market. And the politicians -- well that's not worth mentioning. So, what does David Brooks tell us in his column ? "This recession has exposed America’s social weak spots. For decades, men have adapted poorly to the shifting demands of the service economy. Now they are paying the price. For decades, the working-class social fabric has been fraying. Now the working class is in danger of descending into underclass-style dysfunction." Of course Brooks is right. Working class men are ill-prepared to deal with the effects of...

More Social Security Scare Stories

The Chicago Tribune may have laid off many of their reporters but it still has a Social Security fearmonger position. Greg Burns told readers that: "As of this year, Social Security will be running in the red for the first time in a quarter-century." Wow, that's really really scary. Except Social Security was always supposed to shift from surplus to deficit. That is why the Social Security trust fund accumulated a surplus of more than $2.5 trillion over the last quarter century. Rather than being some extraordinary crisis, the shift in 2010 actually means almost nothing to the financial health of the problem. The fact that Social Security ran into the red this year is one more result of the failure of policymakers and economics reporters to notice an $8 trillion housing bubble. The article also raises the possibility that the United States might see a declining birth rate and stagnant population. While the article implies that this is bad news, in fact the opposite would be the case...

AP Starts Running Editorials on the Deficit As News Stories

AP broke with standard news practices by circulating what can only be considered an opinion piece on the deficit as a news story. The article exclusively presents the views of deficit hawks and misrepresents many fundamental issues about the budget. After noting the Greek budget crisis, the second sentence tells readers: "In the world's largest economic and military power, there's a far more serious debt dilemma." The piece continues: "For the U.S., the crushing weight of its debt threatens to overwhelm everything the federal government does, even in the short-term, best-case financial scenario — a full recovery and a return to prerecession employment levels. The government already has made so many promises to so many expanding "mandatory" programs. Just keeping these commitments, without major changes in taxing and spending, will lead to deficits that cannot be sustained. Take Social Security, Medicare and other benefits. Add in interest payments on a national debt that now exceeds $...

Trade Deficit: Down for the Year, but Up for the Month

The NYT notes the sharp drop in the trade deficit for calendar year 2009 compared to 2008. The falloff in the trade deficit was a striking feature of the downturn. Imports fell by almost than 25 percent year over year. Exports fell nearly as much in percentage terms, but since U.S. exports were only two-thirds as much as imports, this translated into a large improvement in the trade deficit. However, most of the year's data was available before the December trade figures were released last week. The most striking development in the latest data has been the sharp rise in the trade deficit as the economy begins to recover. The December trade deficit of $40.2 billion is almost 60 percent higher than the low point of $25.8 billion in May. This suggests both that trade will be a substantial drag on the economy and that the economy remains on an unsustainable course as the Obama administration refuses to take the steps needed to address the over-valuation of the dollar, which is the cause...

New Economics at the NYT

The NYT told readers that China's central bank is raising reserve requirements rather than the central bank lending rate because it is worried that if raised its lending rate, the higher interest rates would pull more foreign money into the economy. This explanation does not make sense because raising reserve requirements would also lead to higher interest rates. The mechanism is very simple. Higher reserve requirements reduce the supply of money. A lower supply leads to higher interest rates. The article also asserted that the Federal Reserve Board signaled that it would raise its interest rates in months, based on strong growth. It certainly is not clear that the Fed has plans to raise interest rates any time soon, although it has not explicitly ruled out this possibility. It is worth noting that the 5.7 percent growth rate was driven mostly by inventories. Final demand likely grew by less than 2.0 percent after recent revisions to data are incorporated. Few economists are...

Spain's Fundamentals Were Not Sound

Morning Edition reported on Spain's slump this morning. The slump has pushed the unemployment rate into the high teens. At one point the piece presents the views of an economist who asserts that Spain's fundamentals were sound prior to the downturn. This is not true. Spain had a huge housing bubble that led to a current account deficit that peaked at 10.0 percent of GDP in 2007. It should have been very clear at the time that its fundamentals were enormously unsound, it is remarkable that NPR found an economist who even now does not recognize that Spain's fundamentals were not sound during its housing bubble. --Dean Baker

Annualize GDP Growth Rates

In the U.S. economic growth measures are always presented at annual rates. There is no magic to using annual rates, but it is the convention. This is why it is infuriating to see the NYT use quarterly growth figures in an article reporting on Europe's growth rate for the fourth quarter of 2009. The use of quarterly growth rates will undoubtedly confuse the vast majority of readers. It is a simple matter to convert France 0.6 percent quarterly growth rate in the 4th quarter to a 2.4 percent annual rate. Readers who read through this article quickly are unlikely to make this calculation and instead walk away confused about European growth rates. The reporter should have the time to make this simple adjustment. --Dean Baker

David Ignatius: Mervyn King Is Not Only an Incompetent Central Banker, He Also is a Bad Teacher

Mervyn King, the head of the United Kingdom's central bank, is best known for allowing the UK's housing bubble to expand to a level that was even greater than the bubble in the U.S. At its peak in 2007, house prices in the UK were on average about 10 percent higher than the bubble-inflated prices in the U.S., even though the per capita GDP in the UK is about 10 percent lower. As a result of his failure to check the growth of the bubble, the UK has fallen into a severe downturn, with questionable prospects for a rebound any time soon. However, the Washington Post's columnist David Ignatius doesn't want King to be known as just an incompetent central banker, he also wants readers to know that he is an inept teacher. Ignatius tells us that King told him economics in grad school. He then goes on to give an account from King of the world's basic problems which stem from high saving Asian countries and low-saving Europe and the United States. There are two problems with this story. First,...

Is President Obama Opposed to Workers Saving for Retirement?

That is what USA Today claims . It told readers that the Obama administration believes that current saving rates are impairing economic recovery: "It [job growth] will be even tougher if Americans continue to save at high rates — somewhere in the 4% to 7% range — as the White House report predicts they will until the financial services sector eases lending." Actually, the current saving rates are close to half of historic saving rates. Savings rates plummeted in the 90s and the 00s as the wealth created by the stock bubble and then the housing bubble led to consumption booms. This growth path was of course unsustainable and eventually led to the crash in 2008. The obvious path to sustainable growth would be to get the dollar down in order move the trade deficit closer to balance. However, this article implies that the Obama administration is instead seeking to return to bubble driven growth. That should have been the headline of this piece. It is also ironic that the Obama...

Raising the Value of the Yuan Would Reduce Inflation in China

The NYT had an article about rising inflation in China. At one point it notes the government's determination to prevent inflation. It then tells readers that higher inflation may reduce pressure from the U.S. to raise the value of the yuan, since higher inflation in China will make Chinese goods relatively less competitive. It would have been worth noting that a higher valued yuan would help to reduce inflation in China. It would reduce the price of imports thereby putting downward pressure on the price of domestically produced goods. Also, by reducing China's trade surplus, it would slow China's growth. --Dean Baker

Misrepresenting the Economics of Books

The NYT had a piece on a deal that Amazon.com made with book publishers which could raise the price of some e-books by as much as 50 percent. At one point the article asserts that readers who might resist this increase don't understand the economics of publishing: "To consumers who do not pay much attention to the economics of publishing, though, such arguments are trumped by the fact that e-books have been available for $9.99 for more than a year." Actually, the consumers who object to the higher price of e-books likely understand the economics of publishing very well. The marginal cost of an e-book is essentially zero. Economic theory holds that efficiency is maximized when goods sell at their marginal cost. That is why they get so upset over government policies like 20 percent tariffs on Chinese tires. In this case, the government granted copyright monopoly is allowing the publisher to charge a substantial price for an item that would be free in the absence of government...

Can We Cry for the Poor People Making Over $225,000 a Year?

People making over $225,000 must have it much tougher than the rest of us since the media highlight their problems so frequently. In discussing the housing market and the homebuyers' tax credit USA Today told readers : "Many potential buyers in higher-price markets such as New York, Boston, Hawaii and San Francisco won't qualify because their incomes are too high. Under the income limits, single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit." This group accounts for less than 2 percent of families. Given the difficulty facing these upper income taxpayers, it would no doubt make sense to impose higher taxes on renters earning $70,000 so that these potential homebuyers can also get the full benefit of the tax credit (btw, this is a phase out, not a cutoff, so even families earning somewhat above $225,000 will still be getting some money from more moderate income taxpayers for doing the public the service of buying a...

The Trucking Index of GDP

USA Today highlights a new measure of economic activity that is based on truckers' use of diesel fuel. This is an interesting way to try to get an up-to-date measure of the production and sale of goods in the economy. By contrast GDP numbers only come out quarterly and are not released until a month after the quarter is over. Similar information can be found by simply examining the index of hours worked in trucking in the monthly employment report. (Unfortunately, the Labor Department just stopped publishing this index for the trucking sector this month.) --Dean Baker

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