Okay, we'll try it with pictures this time. I have been trying to explain that the monthly wage data are erratic. If we accept the numbers at face value then we would have to believe that workers go from getting healthy pay gains one month to pay cuts the next. To me that seems pretty implausible, but apparently many reporters and some economists think this is the way the economy works.

So today we do it with pictures. The folks who believe that the monthly wage data released by the Labor Department are giving us real insight into the movement in wages think that monthly wage changes look like this.


Percent Change in Average Hourly Wage

average hourly wage

Source; Bureau of Labor Statistics.

That doesn't look like the economy I see, but hey, what do I know?

The celebrations over the economy's strong performance are really getting out of hand. That makes it incumbent on those of us who have access to government data and know arithmetic to work harder to set the record straight.

The basic point is a simple one. The economy is recovering, and at least recently, at a relatively rapid pace. I say "relatively" because if we saw the same job growth rates as we did after steep recessions in prior decades we would be seeing 500,000 to 600,000 jobs a month, but hey 257,000 is better than we had been seeing until 2014.

So this is good news. The problem is that the Wall Street boys (e.g. Robert Rubin, Alan Greenspan, etc.) created a really really deep hole. So things are getting better, but we have a very long way to go to get back to anything we can consider a normal labor market and economy.

There are many different measures that can be cited to make this point. The employment to population ratio for prime age workers (between the ages 25-54) is almost three full percentage points below its pre-recession level. (This gets around the claim that the problem is baby boomers retiring. These people are not leaving the labor force to retire.) The number of people who report working part-time involuntarily is still close to 2 million (@50 percent) above pre-recession levels.

But my favorite measure is the quit rate, the percentage of unemployment due to people who voluntarily quit their jobs. This is very useful because it is a real measure of people voting with their feet. The quit rate is telling us the extent to which workers have enough confidence in their job prospects to tell their asshole boss to get lost and then walk out the door.

In a good labor market people are willing to do this. In a bad labor market the risk is just too great. Workers are worried that it may be months, or longer, before they get a new job. So what do the data say?

Well, the quit rate is up a great deal from the troughs of the Great Recession. It had been as low as 5.6 percent in the middle of 2009 just after the economy had shed almost 8 million jobs. In the January data it was up to 9.5 percent. But this only looks good by comparison. The quit rate had been hovering just under 12.0 percent in the two years prior to the recession.

And for those old enough to remember, that was not exactly a great job market. Wages were at best inching ahead of inflation. if we go back to the late 1990s, which really was a good job market, the quit rate was over 13.0 percent and even got as high as 15.2 percent in April of 2000 Here's the picture.

                        Voluntary Job Leavers as a Percent of the Unemployed


                                          Source: Bureau of Labor Statistics.

So the moral of this story is that yes, things are definitely getting better, but no things are not good. And we know this, not because some overpaid economist or pundit says so, but because workers are voting with their feet.

So it's your call. You can believe the expert (who couldn't see an $8 trillion housing bubble) on your favorite news outlet, or you can believe the people who actually have their jobs on the line.

Allan Sloan is a reasonable conservative, which means that he usually makes reasonable arguments, even if some of us to his left may disagree with them. Today's piece criticizing President Obama's proposal to cap the amount in a tax sheltered IRA at $3.4 million isn't up to the usual standards.

The gist of Sloan's argument is that $3.4 million would not be enough to generate the same retirement income in annuity as President Obama will get in his pension when he retirees. By Sloan's calculation, the $3.4 million will allow a couple to get a dual-life annuity of roughly $100,000 a year, half the size of President Obama's pension of $200,000 a year. He considers this unfair.

I'm a bit at a loss at seeing the unfairness. President Obama gets paid $400,000 a year. This puts him well into the top 1 percent of wage earners. Is that unfair? Of course his paycheck is less than one-twentieth the average for CEOs of Fortune 500 companies, many of whom probably lack the skills needed to operate a lemonade stand.

It's not clear exactly what sort of yardstick President Obama's is supposed to provide. He is obviously at the top of his field, so is it surprising that he would get paid relatively well and also enjoy a comfortable retirement?

Just to be clear, no one is preventing people from accumulating more than $3.4 million to support their retirement. They just won't enjoy a taxpayers' subsidy for the amount in excess of $3.4 million. To those of us who will never have anything close to $3.4 million in a retirement account, the unfairness works in the opposite direction.

If most of us want to have an income of $100,000 plus in our late sixties and seventies then we will have to get the bulk of it by working. This means we will be paying income taxes of 15 to 25 percent, in addition to a payroll tax of 15.35 percent. The person who has accumulated $3.4 million tax free in a Roth IRA and then able to get $100,000 a year in tax free income in an annuity looks like they are doing pretty well. President Obama and his wife may be doing better, but it's hard to have too much sympathy.  

There has been concern expressed in some circles about the growing ratio of debt to GDP in countries around the world. Neil Irwin has a piece on this issue in today's Upshot section of the NYT.

Such concerns are seriously misplaced for a simple reason: the market value of debt is inversely related to the interest rate. The point here is a simple one. Imagine an infinitely lived bond that pays $50 a year in interest. If the prevailing interest in the market for long-term debt is 5 percent, the price of this this bond will be $1,000. However if the interest rate were to rise to 10 percent, the price of the bond would be just $500.

At present, interest rates worldwide are very low by historical standards. This has created a situation in which the market value of debt is very high. However if interest rates were to rise, then the market value of this debt would plummet.

Consider the case of Japan, which can now issue 10-year bonds paying just 0.3 percent interest. If the interest rate on 10-year debt rose to 3.0 percent (still a very low level) the market value of this debt would fall by close to one-third (the exact decline would depend on the timing of the increase). The decline in the market value of longer term debt would be even greater.

The same story applies to private debt. if interest rates were to rise and companies were troubled by the amount of debt they had outstanding they could just issue new bonds and buy up the existing debt at large discounts, thereby reducing their debt burden.

If we want to take a serious look at the extent to which debt is imposing a constraint on economies around the world we should look at the ratio of interest to GDP. That doesn't look very frightening in the U.S. and I suspect there is a similar story in most other countries around the world.



I should also point out that high debt burdens are actually in part a direct outcome of low interest rates. Low interest rates mean it's cheap to borrow, therefore governments, businesses, and households will borrow more. That is actually what we should want to see in a downturn, it means more demand in the economy.

Ideally, governments would take advantage of low interest rates to invest in infrastructure, research and development, and education. Businesses are taking advantage of low interest rates in part to invest and in part to buy other companies. It's cheap, why shouldn't they borrow to buy up shares? Households aren't borrowing against home equity like they did in the bubble years, but undoubtedly many are taking advantage of low interest rates to pay their kids' education or other spending.

Anyhow, we can look to arithmetic and logic to see the impact and cause of higher debt to GDP ratios. Alternatively, we can ignore arithmetic and logic and yell about the debt and the sky falling. It's your choice.

Economists and economic reporters are fortunate they don't work in an occupation like dishwashing or truck driving where job security and promotion depend on performance. If they did, most of the folks currently employed would be on the street after missing little things like an $8 trillion housing bubble.

But no reason to recount old history. Remember all those stories of the booming U.S. economy? Well, they are likely to be just memories. The December trade data was released today. It showed a monthly deficit of $46.6 billion, up from an originally reported $39.0 billion in November (revised up to $38.8 billion in this report).

This will likely push the revised 4th quarter GDP growth to below 2.0 percent. Weak durable good shipments for December reported yesterday will also lower 4th quarter GDP. In short, it don't look like much of a boom.

For fans of national income accounting (i.e. people who live in the real world), the rise in the trade deficit is very troubling. This is the core cause of secular stagnation. This is U.S. generated demand that is creating demand elsewhere. There is no easy mechanism to replace it. We could have larger budget deficits, but that goes against the fashions in Washington policy circles. That means, in the absence of another bubble, we can look to an underemployed economy persisting for some time.

That is the logical conclusion that would be drawn from an article headlined that "U.S. home price gains weakened in December on slower sales."

The piece begins:

"U.S. home values rose at a modest pace in December, a sign there are too few potential buyers to bid up prices.

"Real estate data provider CoreLogic says home prices rose 5 percent in December from 12 months earlier. That is down from the 5.5 percent price gain recorded in November. It’s much lower than the double-digit gains that occurred last year."

Actually, since U.S. house prices are already above their trend level, this is a sign that the market is stabilizing, as one might expect following a sharp tumble and a rapid upswing in prices. Over the long-term house prices have risen roughly in step with the overall rate of inflation. Since inflation was around 1.0 percent in 2014, house prices are still rising considerably more rapidly that would be expected based on their long-term trend. This is the opposite of the story conveyed in this article. 

The NYT led readers to believe that meeting Greece's demand for changing the terms of its debt is far more difficult than is actually the case. It told readers:

"Writing down government debts, or stretching out when they need to repaid, causes losses for the institutions and individuals that hold the securities. Banks hold billions of euros in government bonds and, to make sure the banks remain stable, money would need to be found to replenish the big losses that the banks would suffer. Richer countries would have to agree to provide such funds. Taxpayers there may object, adding support to political parties that oppose much of what the European Union stands for and wants to achieve."

In fact, well over 80 percent of Greece's debt is held by the I.M.F., European Central Bank, and other official institutions. Concessions made by these entities could hugely reduce Greece's debt burden while leaving private debt holders unaffected. These concessions need not cost taxpayers a euro, since the European Central Bank knows how to print euros, which it can and is doing.

If taxpayers are upset it is because they have not learned basic economics which speaks to the quality of the European educational system, not Greece's debts. It is also worth pointing out that in lending Greece money, the official institutions effectively bailed out incompetent bankers who made bad loans to Greece.

The Washington Post might have misled readers with its discussion of efforts to end the conflict of interest inherent in the current system where banks issuing mortgage backed securities hire the agencies that rate their debt. It told readers:

"Congress debated that idea when it put together the sweeping financial overhaul law in response to the 2008 crisis. But lawmakers pushing the idea were unable to include it into the final legislation."

The Senate actually overwhelmingly approved (65 votes) an amendment from Senator Al Franken that would have had the Securities and Exchange Commission pick the rating agency assigned to assess newly issued debt. The provision was stripped out in the conference committee, apparently with the support of then Secretary of the Treasury, Timothy Geithner.

The main substantive argument against the Franken amendment was that the SEC may send over an auditor who was not qualified to rate a new issue. This raises the obvious question of why an investment bank would be trying to market a bond issue that a professional auditor at a major credit rating agency could not understand.

When politicians make assertions that are clearly not true, it would be useful if reporters pointed this fact out to readers. Reporters have time to verify claims by politicians, their readers do not.

For this reason, the NYT failed its readers when it reported on the Republican House vote to repeal the Affordable Care Act (ACA) because:

"Republicans said the law was driving up insurance premiums, burdening consumers with high out-of-pocket costs and leading some employers to cut back workers’ hours so that employers would not have to pay for their coverage."

All the evidence in fact points in the opposite direction. Insurance premiums have been rising less rapidly, the rate of growth of out-of-pocket costs has also slowed, and there is no evidence that employers are cutting back workers hours because of the ACA, although there is evidence that workers are voluntarily choosing to work less because they no longer need to work full-time to get insurance through an employer.

Many readers may not realize that the Republicans' claims were not true. The NYT should have made this fact clear.

That's one question that readers of Eduardo Porter's insightful column on the prospects of the euro must be asking. Porter commented on the concerns expressed by Germany about inflation in a context where the inflation rate has been drifting lower for years and is now near zero. He argued that:

"conditioned by memories of hyperinflation after World War I, they still fear higher inflation."

Hmmm, "memories of hyperinflation?" Let's see, we're talking about a burst of hyper-inflation that took place in the early 1920s. If we say that someone had to be roughly 10 or so at the time to have a clear memory, then those with memories of this hyper-inflation would have to be over 100 years old today.

This point is worth noting, because hyperinflation is not something that any sizable number of Germans alive today actually experienced. For the most part, even their parents didn't experience it. The Germans' concern about hyperinflation is based on national myth, not their own experience. They are making the rest of the eurozone pay an enormous price for this myth.

Matt O'Brien usually has interesting stuff on the economy is his Wonkblog pieces, but his post on the "economic boom" is not up to the usual standards. First, and most importantly, the idea of grading on a curve -- because things are better here than elsewhere we have a boom -- is rather dubious. Some countries were hit less hard by the depression than others. Would we want to say that they were experiencing a "boom?" 

Even if we accept grading on a curve it's not clear we have much of a story. The widely touted "recession" in Japan is seriously misleading. The Japanese proponents of austerity wanted to show that they could do as much damage as their counterparts in the U.K., euro zone, and U.S.. They insisted on a 5 percentage point increase in the sales tax in April. This led to a sharp drop in output in the second quarter. Output also fell in the third quarter, but this was entirely due to inventory fluctuations, final demand grew.

It is a safe bet that GDP will grow in the fourth quarter and will continue growing at a moderate pace in 2015. In terms of how life is on the ground, unemployment fell from 3.5 percent to 3.4 percent in December, with 1.15 jobs for every applicant, the highest ratio since 1992. It's true that Japan is likely to experience slower growth than the U.S., but this is largely due to it having a slowly shrinking population rather than a population growing at a rate of 0.7 percent. There is likely to be little difference in the rate of per capita GDP growth, which is economists' standard measure of income.

Much is often made of slower or negative population growth. There is no reason that anyone except the "it's hard to find good help" crowd should be concerned about such things. If an economy is experiencing healthy rates of per capita GDP growth, then the slower population growth simply means less strain on infrastructure and the environment.

Actually the Post's budget piece didn't tell readers that. Instead it said:

"All told, Obama’s policies would add about $5.7 trillion to the debt over the next decade (compared with nearly $8 trillion under current law). Meanwhile, interest payments on the debt would climb to nearly $800 billion a year by 2025 — more than Obama proposes to spend on any program in that year other than Social Security and Medicare."

Pretty damn scary, huh? Just think of that -- adding $5.7 trillion to the debt, and interest payments that will be larger than spending on any program other than Social Security and Medicare! Sounds like we're going to hell in a handbasket.

If the point of the story was to convey information rather than advancing its deficit cutting agenda (which seems aimed largely at Social Security and Medicare), the paper would have told readers that the interest tab projected for 2025 is 3.0 percent of GDP. Before you scream about what we are doing to our children, consider that interest payments were 3.0 percent of GDP or more every year from 1985 to 1997, except 1994 when they were 2.9 percent. (These numbers are in the same document, Table E-6). These payments were larger than spending on any program except the military and Social Security.

Unlike the NYT, the Post makes almost no effort to put the budget numbers in any context, expressing terms almost exclusively in billions and trillions which they know are meaningless to almost all their readers. It's just another way of saying that the government spends and borrows lots of money, the sort of claim that papers are supposed to leave to the opinion pages.

Give the NYT credit, it is trying to write about the budget in a way that doesn't just bury people in really big numbers. Its main article on President Obama's budget included several references that indicated how large various items were relative to the size of the economy and used other comparisons to place them in a context that could make them understandable to readers. This is a good start, but it could be better.

One item that readers would miss in this piece is any sort of historical comparison. This is important because the piece notes Obama's proposed increases in spending, but readers may not realize this is against a baseline of large cuts. The key area for increases is discretionary spending, both domestic and military. Obama proposes to increase spending in each area by less than 0.3 percentage points of GDP. This implies that spending in both areas will fall to close to 2.5 percent of GDP by the end of the 10-year horizon.

By comparison, spending in both areas had always been far higher as a share of GDP. Military spending had averaged well over 5.0 percent of GDP in the 1970s and 1980s during the cold war years, but declined to 3.0 percent by 2000 before again being ramped up as a result of the wars in Afghanistan and Iraq. Domestic discretionary spending averaged 3.9 percent of GDP in the 1980s and 3.4 percent in the 1990s and well over 4.0 percent in the 1970s. Before the downturn the Congressional Budget Office (CBO) was projecting that domestic discretionary spending would be close to 2.8 percent of GDP by the end of this decade. This means that even with the increases proposed by President Obama he would still be spending less than the baseline path that CBO envisioned when President Bush was in the White House.

Robert Samuelson used his column today to tout a new study that analyzes home purchases by the income level of the buyer in contrast to previous work that analyzed data by average income in a zip code. The conclusion of the study is that increased aggregate debt to income levels was the result of more people buying homes, not higher ratios of debt to income among purchasers. This means that the problem was not a deterioration in lending standards. It also finds that the growth of debt was proportionate to income in each quintile, meaning that low-income households were not singled out for bad loans.

This is an interesting analysis that seems to contradict much other evidence. For example, while it shows no correlation between income levels and delinquency, we know that African Americans were far more likely to lose their home in the crash than the population as a whole. It would be striking if this is exclusively a question of race and not income.

We also know that both subprime and Alt-A mortgages skyrocketed as a share of total mortgage issuance during the downturn, with the former going from around 8-9 percent in 2000 to 25 percent in 2005. The latter went from 2-3 percent to 15 percent in 2005. It is difficult to believe that the growth of these riskier mortgage types wasn't not associated with a rise in the debt to income ratios of borrowers.

And, we have a survey done by the National Association of Realtors at the time. This survey found that 43 percent of first-time homebuyers in 2005 put zero down or less (many people borrowed more than the value of their home). This certainly would not have been the case ten years earlier. Part of the problem could be that the first year in the analysis is 2002, a point at which the bubble was already well underway. The deterioration from 2002 to 2006 would have been far less than if the analysis had begun in a year before the bubble began. The other possibility is that the analysis is not picking up second loans that raised debt-to-income as well as debt to value ratios.

However the deeper point in this discussion is that the question of banker fraud versus a mistaken belief that the bubble will last forever is not an either/or proposition. It is entirely possible that most of the bankers issuing mortgages that they knew borrowers could not pay, or that were based on mis-stated information that they had entered, believed that rising house prices would ensure the quality of the mortgages. The investment bankers who packaged them into mortgage backed securities may have also believed in the bubble.

However this does not change the fact that falsifying mortgage information is fraud and that knowingly packaging fraudulent mortgages into mortgage backed securities is also fraud. The people convicted of fraud charges in the Enron scandal all had large amounts of Enron stock. This indicated that they believed the company was a good buy and presumably had a good business model. They still committed fraud. That is likely true of the folks at places like Countrywide, Goldman Sachs, and Citigroup.

The Commerce Department reported that GDP grew at a 2.6 percent annual rate in the fourth quarter, roughly a half point below most forecasts. This brought growth for the year (fourth quarter to fourth quarter) to 2.5 percent, a modest slowing from the 3.1 percent rate in 2013. Since GDP is the broadest measure of overall economic activity, the weak quarter and weak year-round performance might seem to fly in the face of all the upbeat news we've been hearing on the economy recently. But, most news coverage seemed determined not to let the data spoil the story.

For example, the Post told readers:

"For all of 2014, the U.S. economy grew at a 2.4 percent pace — a relatively dreary number much in line with the previous years of a long recovery. But that number is somewhat misleading: A brutal winter in the northeast led to a sharp contraction in the first quarter. Since then, the nation has seen its best nine-month stretch of growth since 2003 and 2004."

Actually, instead of the 2.4 percent (I get 2.5 percent) pace being misleading, the comment about the next 9 months is misleading. The economy shrank a 2.1 percent annual rate in the first quarter, a drop that was clearly in large part due to the weather. However the strong growth reported for the next two quarters was in large part due to the first quarter shrinkage.

To see this point, assume that the actual rate of growth in the economy is 2.8 percent annually, or 0.7 percentage points a quarter. Now suppose that the economy goes into reverse in a quarter due to weather so that we show that it shrank 0.5 percentage points (2.0 percent annual rate). If the economy returns to its trend path in the following quarter, then it will grow by 1.9 percentage points (0.7 percentage points for the quarter's trend growth, 0.7 percentage points for the first quarter, and 0.5 percentage points to make up for the drop). This 1.9 percentage point quarterly growth translates into roughly a 7.6 percent annual rate. 

This exercise is overly simplistic, but that is basically the story of the rapid growth in the second and third quarters. This growth cannot be understood without reference to the decline in GDP in the first quarter.

The NYT seemed to largely ignore the data altogether, with a lead paragraph telling readers:

"Powered by healthy spending from increasingly optimistic consumers, the American economy is emerging as an island of relative strength in the face of renewed torpor and turmoil elsewhere in much of the world."

Wow, 2.5 annual growth! That should embarrass China with its 7.4 percent growth. Those interested in comparisons with our own past recoveries should know that growth averaged 5.2 percent over the three years 1976-1978 and 5.4 percent over the years 1983-1985. Still feel like celebrating?

Okay folks, get out those umbrellas, we are about to showered with all sorts of garbage as the corporate interests pushing for the Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Pact ((TTIP) go into overdrive to get Congress to approve their deals. We are entering the logic-free zone where ostensibly serious people say any sort of nonsense imaginable to advance these trade deals (not free-trade deals).

Today's entry is a piece by David Ignatius in the Washington Post pushing the merits of the Trans-Pacific Partnership (TPP). Ignatius' big punch line is:

"The Peterson Institute for International Economics estimates that the market-opening features of the TPP will boost U.S. exports by about $123 billion annually by 2025 and add 600,000 jobs."

Hey, 600,000 jobs sounds pretty good. What sort of troglodyte could be opposed to that?

There are a few points that are worth noting on this. First, the comment on exports is a big giveaway. No serious person would talk about exports. Exports do not create jobs in an underemployed economy, net exports create jobs. To see the distinction, suppose that GM shuts a car assembly plant in Ohio and instead ships the parts to Mexico to be assembled. The finished cars are then imported back into the United States.

Exports have risen in this story by the value of the car parts. If you think GM's move of the assembly plant to Mexico was a job creator in the United States, then think more carefully. Anyone who understands basic economics knows that exports by themselves don't create jobs, you have to look at net exports (exports minus imports). Someone who just discusses exports is either ignorant of economics or not being honest.

The next point is that standard trade models are full employment models. This means that everyone who wants a job at the prevailing wage has a job. (Ignatius does not provide a link so it's not clear where he got his numbers.) This means that they create jobs through increasing efficiency. The job creation effect will almost invariably be small and it results from an increased supply of labor. Greater efficiency means higher wages (in these models) and therefore more people want to work.

Is someone paying them to give their readers inaccurate information? I'm inclined to doubt that explanation, but why does the paper keep using this description when it is so obviously not true?

The issue came up in the context of a discussion of the agenda of the Democrats in the House of Representatives. The article notes differences between House Democrats and President Obama and trade, and then tells readers;

"Republican leaders are preparing legislation that would grant Obama broad authority to finalize one of the largest free-trade pacts [the Trans-Pacific Partnership] in the nation’s history."

The Trans-Pacific Partnership (TPP) is far from a "free-trade" deal. It actually will increase some protection in some areas, notably stronger and longer patent and copyright protection. Most of the deal is devoted to creating a uniform and largely business friendly regulatory structure. It creates special courts for businesses to sue governments outside of the normal judicial process. Since most trade barriers between the parties in the pact are already low, it will do little to reduce formal barriers to trade.

It is difficult to see why the Post cannot simply refer to the TPP as a "trade agreement," or even more accurately a "commercial agreement." It could save its praise of the pact for the opinion pages.

Steven Rattner doesn't like people focusing on stimulus as a path to help Europe grow because it is "simplistic." Instead he wants Europe to focus on reducing business regulation, protections for workers, and taxes for the wealthy.

Interestingly, he presents zero evidence that these changes will boost the continent's growth, in contrast to the now vast amount of evidence (e.g. here, here, and here) that stimulus will increase growth. On their face, many assertions seem outright wrong. For example, according to the OECD's assessment, employment protection for workers in Germany are the second strongest in Europe, yet it has an unemployment rate of 5.1 percent. This suggests that labor market protections are not the biggest problem stunting growth. 

Rattner also warns about Europe and even Germany losing "competitiveness." It is not clear what meaning he assigns to that word, but Germany has a trade surplus of more than 6.0 percent of GDP, in contrast to a deficit of 2.4 percent of GDP in the United States.

In some cases, his complaints not only lack evidence, but they defy logic. It is not efficient to allow companies to dismiss workers at will. Long-term employees make substantial commitments and sacrifices to develop firm specific skills. It will often be difficult for them to find new employment if they lose their job in their late forties or fifties. Dismissing these workers imposes costs on them and the government in the form of unemployment benefits and other transfer payments. That might be good for the businesses who can chalk up higher profits, but it is bad for the economy and society.

In short, this piece tells us that Rattner wants Europe to be more pro-business at the expense of the rest of society. He doesn't have any real argument as to why anyone who is not rich should support his position, although I suppose it is not simplistic.

We're still down close to five million jobs from our trend employment path. Or, to put this in generational terms, millions of kids are being raised by parents who can't find work. We have endless needs for infrastructure, health care, child care, and education, and reducing greenhouse gas emissions which are not being met because of concerns over budget deficits. Given this situation, Ruth Marcus would naturally use her column in the Washington Post to warn about the government debt.

She bemoans the fact that President Obama barely even mentioned the debt in his State of the Union address:

"Oh, the debt. Yawn. How passe. How 2009.

"Once, President Obama held a summit on fiscal responsibility (2009). Once, he gave an entire speech devoted to the subject (2011). Once, his State of the Union addresses (2010, 2011, 2013) were studded with double-digit references to the problem of sky-high deficits and lingering mountains of debt.

"Now, the topic receives just a glancing mention, a clause ('shrinking deficits') in a series of presidential back-pats and a refutation of warnings of Apocalypse Soon."

While Marcus is clearly terrified by the deficit and debt, the column gives no reason why we should be more concerned about debts and deficits (yes, big numbers) than the number of trees in the United States (a number I do not know offhand, but I'm sure it's also big).

The best we get is a quote from an earlier State of the Union that is both wrong and arguably appealing to racist sentiments:

"Even after our economy recovers, our government will still be on track to spend more money than it takes in throughout this decade and beyond. That means we’ll have to keep borrowing more from countries like China. That means more of your tax dollars each year will go toward paying off the interest on all the loans that we keep taking out."

The budget deficit actually does not mean that we have to borrow from countries like China. We have to borrow from countries like China because we run a trade deficit. This in turn is the result of an over-valued dollar. The over-valuation of the dollar is the result of countries like China buying up large amounts of U.S. assets, including U.S. government debt. (This is how they "manipulate" their currency.)

If countries like China stopped buying U.S. debt and other dollar denominated assets then the value of the dollar would fall and we would move towards balanced trade. This would increase employment and also, by the way, reduce our budget deficit.

Marcus later tells readers, quoting in part from the Congressional Budget Office:

"Another is that, unlike at the start of the financial crisis, when debt amounted to just (!) 43 percent of GDP, the overhang of already huge debt could 'restrict policymakers’ ability to use tax and spending policies to respond [exclamation mark in original].'"

That is not exactly what the NYT said. Instead its article on the dispute between the new Greek government and Germany and other northern European countries chose to use bias in the opposite direction telling readers:

"But beneath the arguments over austerity is a deeper conflict of democratic wills, between the verdict of voters in Greece, who are desperate for some relief, and those in Germany, Finland and the Netherlands, who do not want their taxes used to underwrite a blank check for countries that get into financial trouble."

Really? The voters in Germany, Finland, and Netherlands are just concerned about issuing blank checks? Have they noticed that Greece cut its budget by 27 percent since 2008? This would be equivalent of a cut in annual spending in the United States of almost $1 trillion in its impact on the budget and close to $2 trillion in its impact on the economy.

These cutbacks, coupled with the austerity that the European Union has imposed on much of the rest of the euro zone, has had the predictable effect of throwing Greece's economy into a downturn that makes the U.S. depression look like an economic boom. Are voters in Germany, Finland, and the Netherlands really so ignorant of economics that they do not understand this fact?

At another point the article tells readers:

"Jeroen Dijsselbloem, the head of the group of finance ministers from countries using the euro, said he did 'not believe in this north-south divide,' noting that 'there are a lot of countries in the north, think of the Baltics; in the south, think of Spain; and Ireland' in the west, and they 'have done major reforms, and they are all back on the growth track.'"

It would have been worth pointing out that on Mr. Dijsselbloem's "growth track" Spain's economy is projected to first exceed its 2008 GDP in 2019. Ireland is projected to first pass its 2007 peak in 2016. By comparison, in the Great Depression, U.S. GDP was 6.0 percent larger in 1937 than it had been at the onset of the depression eight years earlier in 1929.

It also would be worth pointing out that many of the crisis countries' problems did not stem from a lack of "budget discipline." Several were running modest deficits and Spain and Ireland actually had large budget surpluses before the crash. Their economic problems stemmed from the fact that bankers in places like Germany, Finland, and the Netherlands were not very competent and thought that the housing bubbles in these countries could keep growing forever. Therefore they funneled hundreds of billions of dollars in loans that further inflated the bubbles and distorted the crisis countries' economies.

A NYT article on the dwindling size of the middle class noted that seniors are more likely to be middle class than in the past. It told readers:

"Today’s seniors have better retirement benefits than previous generations. Also, older Americans are increasingly working past traditional retirement age."

In fact, seniors on average almost certainly have worse retirement benefits. The increase in the normal retirement age from 65 to 66 is equiavlent to a 6 percent cut in Social Security benefits. In addition, changes in the methodology used for calculating the consumer price index reduced the size of the annual cost-of-living (COLA) adjustment by 0.3-0.5 percentage points compared to the increases in the early and mid-1990s. (This means that for the same actual rate of inflation, seniors would see a COLA that is 0.3-0.5 percentage points less than what they would have received in the early and mid-1990s.)

In addition, today's seniors are less likely to have a defined benefit pension, as these are dwindling rapidly. Defined contribution pensions have not come close to making up the loss. Seniors also are far less likely to have retiree health insurance to cover non-Medicare expenses. Medicare has also become less generous in many respects, although the addition of the Medicare drug benefits (Part D) has been a big help to seniors.

The main reason seniors have more income is that they are working later in life. This is a positive insofar as it is the result of the voluntary decision of people in good health who enjoy their work. However in many cases, this is almost certainly not true. Many older workers are staying in the workforce because they have no other way to make ends meet.

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