Like most newspapers, the Washington Post likes to run opinion pieces that present a different take on the news. But most newspapers prefer that this different take is grounded in reality, not the Post. Today the Post featured a piece by Donald Luskin, an advisor to John McCain, saying that the economy is just fine. The highlight of this argument seems to be that economy grew 3.3 percent in the second quarter “virtually the same as the 3.4 percent average growth rate since --yes, the Great Depression.” Apparently, Mr. Luskin wasn’t informed of the $160 billion stimulus package that Congress used to keep the economy growing in the second quarter. Since Congress doesn’t have comparable packages available to hand out in the third and fourth quarters, GDP is likely to be flat or negative in these quarters. While Luskin argues that people were led to believe that the economy is bad because of the media’s negativism, it is also possible that they are responding to the weakest labor market since the early nineties. They may also be responding to the fact that wages fell behind inflation by close to 2 percentage points last year as people’s paychecks did not keep pace with the price of food and the price of gas. In fact, the typical worker has seen no benefit for the last seven years of economic growth. Workers probably know that they are not getting ahead, even without the media pointing it out. The rest of the piece is a range of confused and misleading statistics. The piece argues that default and foreclosure rates are no worse than the late 90s (huh?). Take a look at the Fed’s data on charge-off rates for loans for residential real estate. The rate for the last quarter was more than twice as high as the peak in the last recession and more than four times as high as any rate in the 90s. Delinquency rates are almost one-third higher than at any point in the last recession. Luskin comments that house prices have bottomed out using indexes that don't control for the mix of homes being sold. Since the subprime end of the market has been hardest hit, the typical house sold today is almost certainly far more upscale than the typical house sold last year. Indexes that do control for the mix, show that nominal house prices are down by more than 10 percent from last year. That's a sharper decline than at any point since the Great Depression. Luskin also doesn't see anything unusual in the pattern of failing financial institutions. Yeah, Fannie and Freddie go down every week, not to mention Bear Stearns, Lehman Brothers, Indymac. These are not neighborhood banks going down the tubes. Even the "record" homeownership rate touted in the price is nonsense. The rate has fallen sharply in the last two years. In age-adjusted terms (people are more likely to own homes in their 40s than their 20s) we're not far above where we were a quarter of a century ago. This column has no place in a serious newspaper (unless its intention was to embarrass McCain). Of course on economic issues the Post does not claim to be a serious newspaper. In order to push its pro-NAFTA view, it told readers last year that Mexico's GDP had quadrupled since 1998, implicitly claiming a success for NAFTA. The real growth figure was 83 percent. A serious newspaper would have corrected this enormous mistake. The Post still has not.
--Dean Baker
