No, unfortunately that is not a joke. The Washington Post devoted a major article to explaining to readers how a foreclosure moratorium is actually bad for homeowners. The article explains that for government workers with security clearance, the ambiguous debt status of a mortgage facing foreclosure may raise issues, since being behind in one's debts can be grounds for revoking a security clearance. (The logic is that if you can't manage your finances you might be susceptible to blackmail.)

There are two serious problems with the Post's piece. First, it is unlikely that someone stands in a better position with their security clearance after their house has been foreclosed than before. There may be some uncertainty while the process is in limbo, but the uncertainty is better than having the foreclosure actually take place.

Second, it is not true as the Post asserts that:

"Foreclosure delays started when Ally Financial, formerly GMAC, suspended evictions last month after concerns arose about flaws in court documents used to seize homes."

Actually, the flood of defaults has created a huge backlog as banks try to catch up with the huge number of people who are behind in their mortgages and also in many cases consider loan modifications. In other words, it is not new that many homeowners who are behind in their mortgages would find themselves in an uncertain status on foreclosure. So, there really is no story here.



The NYT had a piece on the recent decline in the value of the dollar and effort by other countries to offset its impact. The article noted in particular developing country efforts to reduce capital inflows that are raising the value of their currency.

It would have been worth noting that in standard economic theory, developing countries are supposed to be borrowers. The logic is that capital is relatively scarce in the developing countries, which means that it gets a higher return. Capital therefore should flow from relatively to slow growing rich countries to more rapidly growing developing countries.

This was the direction of flows until the East Asian financial crisis in 1997. The harsh conditions that the IMF imposed on the East Asian countries led developing countries throughout the world to focus on building up reserves so that they would not have to deal with the IMF. This reversal coincided with the "high dollar" policy touted by then Treasury Secretary Robert Rubin. It helped to lay the basis for the imbalances associated with the stock and housing bubbles.

To a large extent, the decline in the value of the dollar would effectively reverse the distortions to the world economy resulting from the IMF-Rubin policy of the late 90s. It is also worth noting the recent decline in the dollar is largely just reversing its run-up as a result of the financial crisis in 2008. Money flowed into the U.S. as a safe haven, pushing the dollar well above its pre-crisis levels. It is now falling back toward the level it was at before the crisis.

The Washington Post headlined a piece on a Republican proposal to cut Social Security benefits, "GOP Social Security plan would cut benefits for higher earners." This headline may lead one to believe that the plan would only cut benefits for relatively affluent workers. In fact, the plan would cut benefits for 70 percent of all workers, as indicated in the first sentence. The plan also raises the retirement age to 70, which amounts to an additional benefit cut of roughly 15 percent for all workers. 

The table accompanying the article also badly understates the impact of the cuts proposed in the Republican plan. It compares the benefits that a medium earner would get under the Republican plan in 2050 with the earnings that a medium earner would get today. The more appropriate comparison is the currently scheduled benefits for a medium earner in 2050. This is projected to rise by more than 48 percent to over $1,800 a month (in 2010 dollars) by 2050. The Republican plan would imply a cut of more than 35 percent against this scheduled level of benefits.

The article also presents an inaccurate statement from a spokesperson for Representative Ryan (the author of the Republican plan) without pointing out to readers that it is wrong. The spokesperson said that:

"According to the Social Security Administration, Congressman Pomeroy's do-nothing plan will impose painful, across-the-board benefit cuts on current seniors and those nearing retirement."

Actually, the trustees project that the program can pay full benefits for through the year 2037 with no changes whatsoever, at which point it would be able to pay 75 percent of scheduled benefits. Very few current retirees can expect to live more than 27 years.


[Addendum: Actually, the numbers in the chart refers to benefits that are indexed to the average wage in the economy. This means that if benefits doubled in nominal dollars and the average wage doubled, then indexed benefit would show no increase. The size of the cuts in the plan put forward by Representative Ryan depend on the exact point a worker's wages fall in the distribution.  If one combines the impact of the change in the indexation formula proposed by Representative Ryan and his proposed increase in the retirement age, it would lead to a 25 percent cut from scheduled benefits for medium wage earner.]


A Washington Post editorial expressing doubts about the Federal Reserve Board's plan to boost the economy with additional quantitative easing told readers:

"it's not clear how the Fed will sop up all the extra liquidity it's creating once growth resumes." 

Actually, it is clear. The Fed has several tools to reduce the money supply and prevent inflation. It can raise the federal funds rate that banks pay for borrowing reserves overnight, it can increase the reserve requirement, forcing banks to hold more reserves, and it can raise the interest rate it pays on reserves encouraging banks to hold more reserves. One would hope that the Post's editors would be familiar with these mechanisms.

The piece then goes on to express its real concern:

"The deeper fear is that QE2 is a cyclical solution to a structural problem. Many corporations are flush with cash already but simply don't see enough opportunities for profitable investment within the United States. The list of reasons include households with too much debt; political and policy uncertainty; a growing mismatch between the skills of unemployed U.S. workers and the available work; and a broader shift in economic dynamism from the developed to emerging markets."

This is an interesting story. All the evidence, including what appears in the Washington Post news section, suggests that we have a cyclical (i.e. not structural) problem. In other words, unemployment as soared because the economy lacks demand.

The problem is that the economy was driven by an $8 trillion housing bubble. Now that this source of demand has disappeared, the economy needs a new source of demand. In the short-term this demand can only come from the government and from very stimulatory monetary policy. In the longer term, a lower dollar is needed to move the trade deficit closer to balance.

There is zero evidence to support the Post's claim of, "a growing mismatch between the skills of unemployed U.S. workers and the available work." It would be an important news item if it uncovers any evidence of this phenomenon.

David Leonhardt outlines an interesting proposal to reduce the cost of Medicare. He challenges readers to come up with alternatives.

There is an easy and simple one that health care reformers appear unwilling to consider. Let Medicare patients buy into the more efficient health care systems in other countries and split the savings. According to the Congressional Budget Office's projections, these savings will rise into the tens of thousands per beneficiary per year.

The NYT had an interesting piece this morning on how insurers are trying to reduce the cost of treating cancer. While the piece notes that much of the cost is related to the high price of new cancer drugs it would have been worth mentioning that this is the result of government granted patent monopolies. If the government used a different mechanism for financing drug development and allowed drugs to be sold at the free market price, all of these treatments would be relatively low cost. The doctors would be able to choose the one that they viewed as best for their patient without worrying about the cost.

Eric Schurenberg is upset about Social Security and Medicare benefits because the federal government spends 7 times as much on each senior as it does on each child. This is taken from a paper that came out from the Brookings Institution. 

Let's use the Schurenberg-Brookings methodology to see the ratio of average federal spending on the country's 400 billionaires to spending per child. For convenience let's say that federal spending averages $5,000 per child.

How much does the federal government spend on each billionaire? Most wealthy people hold some amount of their wealth in government bonds. Let's conservatively assume that our 400 billionaires hold an average of $1 billion worth of government bonds. Let's assume that these bonds pay an average interest rate of 4 percent. This means that the government is paying our billionaires an average of $40 million a year in interest. This is about 8,000 times what we spend on children on average. How's that for fairness?

Okay, everyone is jumping up and down saying that our billionaires paid for these bonds and this interest is just a return on that payment. This is true, but guess what? Our seniors paid Social Security and Medicare taxes to cover their benefits. In other words, they paid for these benefits much like the billionaires paid for their bonds, except of course that the seniors had no choice in the matter.

Ignoring the fact that Social Security and Medicare were paid for with designated taxes is dishonest, just as it would be dishonest to comment on the interest payments going to the billionaires without noting that they had paid for their bonds. But hey, this is the state of public debate in Washington.

The Washington Post appears to have outdone itself in a discussion of the politics surrounding the foreclosure crisis. For beginners, it told readers that:

"Reviving the economy requires repairing the housing market."

What does the Post possibly think it means by this statement? Does it mean that reviving the economy means re-inflating the housing bubble? That's a novel economic theory. Maybe they should find an economist who won't laugh at it.

Does it mean that reviving the economy means allowing the bubble to complete its process of deflation. This would arguably be a good thing, because then people stop throwing money in the toilet buying homes at bubble-inflated prices. The further deflation of the bubble also means that homeowners would recognize how little equity they actually have so they can adjust their savings accordingly. But, this means a higher saving rate (i.e. less consumption), which would slow the economy, so it is difficult to understand how that promotes economic revival.

This great sentence continues:

"which won't happen until foreclosed properties and delinquent mortgages are dealt with."

The rest of the paragraph explains to readers that:

"So the White House, which is looking past the midterm elections, has been restrained. Housing and Urban Development Secretary Shaun Donovan wrote over the weekend that 'a national, blanket moratorium on all foreclosure sales would do far more harm than good, hurting homeowners and home buyers alike.'"

Okay, it's fun with logic time. Secretary Donovan wants more foreclosures, presumably to further depress prices. Nevermind that the impact is likely to be very limited at the moment, since banks already have a huge inventory of foreclosed homes that they are holding off the market.

If Donovan thinks it is good to speed up the foreclosure process then why is the administration pushing HAMP? According to Treasury Secretary Timothy Geithner, one of the main purposes of HAMP was to slow down the foreclosure process. So the administration thinks that it is very important to both speed up and slow down the foreclosure process? That may make sense to the Washington Post, but probably not to anyone else.

We should probably also mention the homebuyers' tax credits. These credits also temporarily supported the market. This allowed many homeowners to dump their homes at bubble-inflated prices. It also allowed banks to get out of mortgages that might otherwise have gone underwater, or in many cases, further underwater.

The article then gives us a quote from a Democratic consultant without a name:

"But shutting down foreclosures has the potential of shutting down the whole housing market, which isn't helpful to anybody."

Let's see, we have how many hundreds of thousands of homes that non-foreclosed sellers are putting on the market each month, plus a backlog of several hundred thousand foreclosed homes already in the banks' possession. How exactly does a moratorium on foreclosures shut down the whole housing market?

Then we have the orphan and widow sob story:

"A freeze in foreclosure sales also hurts private investors - including endowments, pension funds and mutual funds - who in good times greased the wheels of the real estate market by buying mortgage securities."

Yes, some endowments, pension funds and mutual funds made bad investments because their highly paid investment advisers were too incompetent to see an $8 trillion housing bubble. What does that have to do with an insistence that the law be followed when houses are foreclosed. Endowments, pension funds and mutual funds also lost money when companies in which they held stock were hurt by trade agreements. The Post has never mentioned this fact prominently. In any case, this is the way a capitalist economy works. Almost anything the government does or does not do will cause endowments, pension funds and mutual funds to lose money on some of their holdings.

The Post concludes by giving us a tirade from a Virginia realtor who "upset that deadbeat borrowers may get a break." Of course the issue here is simply making sure that the law is followed -- a fact that the Post managed to obscure very effectively in this article. Presumably even the Virginia realtor would agree that banks should not be able to throw people out of their home without going through the normal legal process. 


If you asked people what the retirement age is for Social Security most people would probably say 66, or perhaps age 65 if they missed the fact that the age for full benefits has been increased. However, workers can qualify for early benefits at age 62 and most workers do in fact start collecting benefits shortly after reaching this age.

This is why it is very disturbing to see the NYT and other reports on France routinely refer to President Sarkozy's plan to raise the retirement age in France from age 60 to 62. This refers to the early retirement age. The normal retirement age is already age 65 and would rise to age 67 under Sarkozy's proposal.

In the same vein, the article refers to a plan by Germany to raise its retirement age to 63 without noting that this refers to the early retirement age. The age for full benefits in Germany is currently 67.

The article also points out projections for declining ratios of workers to retirees, which will put pressure on retirement systems. It would have been helpful to point out that real wages are projected to increase at the rate of approximately 1 percent annually. This would allow workers to spend a larger portion of their life in retirement if they opt to take a portion of this gain in longer retirements with somewhat smaller pay gains.

I'm not kidding, read it for yourself. Samuelson notes Fed plans to buy more Treasury bonds. He then warns of the "dangers." He comments that the policy may prove ineffective -- the Fed may be pushing on a string:

"But if all the cheap money spurs much higher economic growth, many of these reserves will turn into loans and raise the specter of higher inflation -- 'too much money chasing too few goods.' The Fed would then have to withdraw or neutralize the added money through higher interest rates."

That's great, we're sitting here in the most prolonged downturn since the Great Depression, with the inflation rate closing in on zero, and Samuelson is worried that we may get a burst of growth that could lead to higher inflation. Only in the Washington Post.

The Washington Post apparently thinks that banks have a fixed number of employees. This is the only meaning that can be attached to their warning in an editorial arguing a foreclosure moratorium that:

"An ironic consequence of diverting staff to fixing affidavits now is that it leaves fewer people to modify salvageable loans."

See, the way this would work is the banks would realize that they need more workers to handle the foreclosure process in a way that complies with the law. (You know, the law, what the rest of us have to obey.) The banks would run help wanted ads, maybe even in the Post, and employ some of the millions of people who have lost their jobs in the downturn. Hiring more workers would of course lower bank profits and dip into executive bonuses, but that is the way things are supposed to work in a market economy.

The mind readers at the NYT told readers that:

"The Obama administration has resisted calls for a more forceful response, worried that added pressure might spook the banks and hobble the broader economy [emphasis added]."

It is easy to see how a foreclosure moratorium might hurt bank profits. After all, the banks could be forced to follow the same laws on mortgages and property transfers as the rest of us. This would raise their costs and reduce their profits, which is why they had been taking short-cuts instead of following the law.

However it is not easy to see the chain of events whereby a foreclosure moratorium hurts the broader economy. Certainly Housing Secretary Shaun Donovan couldn't produce a credible story in the piece in the Huffington Post cited in this article.

Donovan uses the absurd story of a young woman who just bought a foreclosed property who he claims would have been unable to achieve her dream of homeownership if a foreclosure moratorium were in place.

Huh? Doesn't the housing secretary know that there is a huge inventory of foreclosed homes that banks are holding off the market waiting for better times? If the pipeline of newly foreclosed homes was temporarily stopped by a moratorium, this inventory would easily keep the market well-supplied with foreclosed properties for long into the future.

And, wasn't one of the main purposes of HAMP to slow the process of foreclosure? The argument was that this slowing was necessary to stabilize the market. Does the Obama administration want to slow or speed up the process of foreclosure, or both? And are both essential for the housing market?

This is what a reporter would be asking after seeing Secretary Donovan's piece. (Btw, yes both HAMP and blocking a foreclosure moratorium helps banks.)


The NYT devoted a lengthy piece to telling readers how bad things in Japan have been since its bubbles collapsed in 1990. It gets many things badly wrong.

First and most importantly, Japan is actually considerably wealthier on average today than it was in 1990, contrary to the implication of this article. According to the IMF, per capita income is 16.4 percent higher in Japan today than it was in 1990. This is considerably less than the 21.5 percent growth in the UK over this period or the 36.6 percent increase in the United States, but it is still a substantial gain in living standards. It is also worth noting that Japan's gain in per capita income was accompanied by a considerable shortening in the ratio of hours worked to population (shorter workweeks and more retirees).

However the biggest flaw in the piece is its obsession with deflation. Japan's has suffered from deflation in the last two decades, but the rate of price decline has always been very gradual. Only in 2009 did it even exceed 1.0 percent. (It is projected to be larger than 1.0 percent this year.)

It makes very little difference to an economy whether prices are falling by 0.5 percent or rising by 0.5 percent. The argument that people put off purchases because they see prices falling is just silly. If prices are declining at the rate of 0.5 percent a year, then someone considering the purchase of an $800 refrigerator can save $4 by waiting a year. It is unlikely that these sorts of savings would have much impact on even the purchase of a big ticket item; it's inconceivable that they would have any impact on the purchase of more every day items like food and clothing.

The real issue is simply that Japan's inflation rate has been too low. In this sense, a 0.5 percent deflation rate is worse than a 0.5 percent inflation rate. But a 0.5 percent inflation rate is also worse than a 1.5 percent inflation rate. A low inflation rate, whether positive or negative, keeps real interest rates higher than would be desirable in a severe downturn. It also prevents the economy from inflating away the debt burden left over from the housing bubble.

This point is important because many people wrongly believe that the United States will only be suffering from a problem of too low inflation if the inflation rate actually turns negative and we have deflation. This is not true. The inflation rate in the United States is already a level that is hampering growth. Any further drop in the inflation rate will make the situation worse but there is no importance to crossing zero.

One final point worth noting: this article implies that Japan's low birthrate is a bad thing. Actually, Japan is a very densely populated country. This is why house prices are so high. If its population declined then housing prices would fall. (This is a sophisticated economic concept known as "supply and demand.") A lower population would also mean less greenhouse gas emissions for those who care about the future of the planet. For these reasons, a low birthrate could help Japan in the future.

With private sector unionization down to 7 percent, the right-wing is turning its guns on public sector unions. Since workers generally can opt to join a union in the public sector without the risk of being fired, there has been no notable decline in public sector unionization rates over the last three decades. The unionization rate in the public sector is still above 35 percent, which means that public sector unions continue to be an important force on the political scene.

The Washington Examiner accommodated this attack with a piece from Diana Furchtgott-Roth, the chief economist at the Labor Department in the Bush Administration. The centerpiece of Ms. Furchtgott-Roth's piece is a complaint "insourcing," which means having work done by private contractors done instead by public employees.

Her first sentence has the bizarre complaint that:

"Even though Americans face a 9.6 percent unemployment rate, with almost 15 million out of work, President Obama and Congress are trying to take more jobs from private businesses through 'insourcing,' which means taking contracts from private firms and giving the work to government employees."
The 9.6 percent unemployment rate is obviously awful, but what does that have to do with whether jobs should be done by workers in the public or private sector? For most people a job is a job. If some of the unemployed get re-employed in the public sector, what is the problem?
But the more fundamental point is that the policy that Furchtgott-Roth complains about does not in fact exist. She is upset about an insourcing policy that gives preference to the public sector over private contractors.
However, that is not the policy in place. The policy only gives preference to the public sector in cases where the work in question has an inherently governmental character (think of interrogating prisoners) or there had been a past history of abuse by private contractors (think of Halliburton).
The simple fact is that the role of private contractors in the federal government has exploded in the past decade. The real value of private contracts increased by more than 50 percent between 2000 and 2009. Many of these contracts have been associated with serious abuses. It is understandable that the recipients of these contracts would be concerned if some of this business ended up back in the public sector, but it is hard to see why the rest of us would be.
We might not expect the Washington Examiner to be "fair and balanced," but it would be nice if it stuck a little closer to the truth.

Dan Balz gave Washington Post readers classic "he said, she said" reporting in his coverage in the debate in Nevada's Senate race. Balz reported that Sharon Angle, the Republican challenger, claimed that Social Security is facing a serious crisis. He then noted that: "Reid suggested that, with tiny fixes, the system would be good for the next four decades or beyond."

Actually, what Reid "suggested" is exactly what the projections from the Congressional Budget Office show as well as the projections from the Social Security trustees. The vast majority of Post readers don't have the time to investigate the truth of Reid's statement, Dan Balz does. He should have told readers that Senator Reid was right and Ms. Angle was wrong according to the standard projections used to evaluate this program.

NPR made this mistake in its top of the hour news segment on Morning Edition. Both parties might say that current budget deficits will cause problems, but they cannot "acknowledge" something that is not true. (If NPR knows this to be true, then it should share this information with its listeners.)

Since the economy has vast amounts of unused resources there is no reason that current deficits would pose any problem. And, the Fed could in principle buy and hold the debt used to finance the deficit so it places no interest burden on future generations.

We aren't supposed to use the word "lie" in Washington, probably because the practice is so common, but let's just use normal English for a moment. NYT Roger Cohen devotes his column to a tirade against the French for their opposition to raising the retirement age. This opposition has taken the form of a general strike that has seriously disrupted the economy.

Cohen is a huge proponent of the increase -- he calls it a "no-brainer." This is fine, he is a columnist and this is his opinion. But how about getting the basic facts right? The headline and discussion in the article focus on a raise in the retirement age from 60 to 62. Cohen argues that this is necessary because life expectancy has risen 15 years since 1950.

Age 60 is not in fact the age for getting full retirement benefits in the French Social Security system. It is age 65. Age 60 is an early retirement age at which it is possible to retire with reduced benefits. It is comparable to the age 62 early retirement age in the U.S. system. Cohen is not alone in failing to make this point clear, but he certainly does raise this distortion of the debate to a higher level.

The 15 year increase in life expectancy is also deceptive. The implication is that the French expect to be retired on average for 15 years more than in 1950. Actually, much of the increase is due to reduced infant mortality rates. This does not directly affect the arithmetic of the retirement system. Much of the increase is due to more people living until retirement. This improves the finances of the retirement system. Only a portion of the increase is due to people living longer post retirement. (I don't have the breakdown for France, but here's the U.S. story.)

Cohen also includes the bizarre assertion that France has to raise its retirement age because "the Chinese don’t get the notion of retirement." Unfortunately this sort of junk is often used in arguments for cutting wages and benefits for ordinary people.

Is Roger Cohen a Neanderthal protectionist? Does trade make the world poorer? That is not standard economic theory. If it would have been possible for people to enjoy early retirement benefits in France at age 60 without trade with China, then it should be even more possible now that the French have the benefit of low-cost goods made in China.

Unfortunately Cohen's misrepresentations (we're being polite again) are the norm in this debate. Billionaire investment banker Peter Peterson routinely goes around saying that there is no Social Security trust fund. This blatant untruth should put Peterson on the top pedestal of the Economics Flat Earth Society. Instead, he is treated reverentially in elite DC circles and even wins himself invitations to the White House. 

The world is not getting poorer. Productivity is improving year by year. (France's productivity level is only slightly lower than the United States.) It is perfectly reasonable for a society to opt to take the benefit of higher productivity growth in the form of longer retirements.

This does have to be paid for, presumably primarily through taxes on wages -- in effect workers pay for their own retirement. In the United States, while Social Security cuts are talked about all the time in Washington's elite policy circles, polls routinely show that workers are actually willing to pay higher taxes to finance their retirement benefits, and that they prefer taxes to cuts. This is not a problem of people being childish. This is a problem where the elites have arbitrarily ruled out one of the key options.

Of course it is also possible to support a retirement system in part with more progressive taxation. In the United States, raising the cap (currently $106,000) on taxable wage income would go a long way to reduce the projected long-term shortfall in funding.

It is also possible to raise money from directly taxing those who have been the big winners in the current economy. A financial speculation tax could raise as much as 1 percent of GDP in the United States ($145 billion a year). This is twice the size of the projected shortfall in the Social Security benefits.

Financial speculation taxes are almost never discussed in the media even though they have been widely used. (The United Kingdom still raises 0.3 percent of GDP [$40 billion a year in the U.S.] from a tax that only applies to stock trades.) They are politically difficult because of the power of the financial industry in the United States and elsewhere.

But talking about cutting Social Security benefits, rather than raising financial speculation taxes, or other progressive taxes, cannot honestly be called making tough choices. It is making a cowardly choice. It is serving the interests of the rich and powerful at the expense of the vast majority of the population. That may be what politics is about, but it should be described accurately.




Politico told readers that: "On Friday, Social Security recipients will learn that they won’t receive higher benefits for the second year in a row because the economy isn’t growing fast enough." Actually, this is not true. The cost of living adjustment for Social Security has nothing to do with the economy's growth rate. It is based on the rate of inflation as measured by the consumer price index. The reason that beneficiaries will not receive higher benefits is because the CPI shows no inflation over the last year.

The difference between inflation and growth is very important and fundamental. Reporters should be able to get it right.

Weekly unemployment claims jumped by 13,000 to 462,000 last week. The 4-week moving average is at 459,000. This suggests that the economy is still not generating jobs. Following the last downturn, the economy did not start generating jobs consistently until weekly claims had fallen to near 400,000.

It is also worth noting that the unemployment insurance filings may be lower relative to the number of layoffs each week than was true in the past. The reason is simple: because of prolonged high unemployment, many workers who are newly laid off are not eligible for benefits.

Requirements vary by state, but most look back at a workers history over either the prior 4 quarters or the 4 quarters prior to the most recent quarter. To qualify, workers need some minimum number of work hours (e.g. 500 to 600 hours) or minimum earnings (e.g. $2,500 to $3,000) over the relevant 4 quarters.

Either 4 quarter period is a time in which unemployment was quite high. Furthermore, while unemployment has hit everyone, it has hit some groups especially hard. The unemployment rate for workers with just a high school degree has averaged almost 10.5 percent for the last 12 months. For workers without a high school degree it has averaged almost 15 percent. For workers between the ages of 20-24 it has averaged almost 15 percent.

Many of the people who got laid off last week may have just recently been hired after an extended spell of unemployment. This means that they would not qualify for benefits. This is always true for some number of the newly unemployed, but that share would be much larger today than it had been in 2007 when the unemployment rate had been under 5.0 percent over much of the prior 12 months.

It is not clear how much this would affect unemployment claims, which is the number reported each month. This number gives the number of people filing, not the number who are determined to be eligible. It is likely that many ineligible workers go ahead and file, not realizing that they ineligible. 

However, some workers undoubtedly understand the system and don't bother filing. We don't know how large this number is, but if it is 5 percent of the newly unemployed, that would correspond to nearly 25,000 additional claims a week. This implies that the 461,000 claims filed last week would correspond to roughly 485,000 claims filed three years ago, before the long period of high unemployment had set in.


In a confused column today, Steven Pearlstein touted the need for wages in the United States to fall. He focused on the wages of autoworkers, but implied that the wages of less-educated workers more generally must fall. At the end of the column Pearlstein told readers:

"I'm sure many of you are reading this and thinking that if anyone is forced to take a pay cut to rebalance the economy, surely it ought to be overpaid investment bankers, corporate executives and newspaper columnists. That's how things would work in a socialist paradise, but not in market economies, which are much better at producing efficiency than fairness."

Well no, it is not the case that a "market economy" led to the high salaries of investment bankers, corporate executives, and newspaper columnists, while forcing wage cuts on auto workers. In fact, there are a wide variety of government interventions that created this situation.

For example, there was the government bailout of the banks two years ago. By offering trillions of dollars in loans and guarantees the government kept Bank of America, Citigroup, Goldman Sachs, Morgan Stanley and other Wall Street giants in business. In a market economy, the top executives of these companies would be walking the unemployment lines right now instead of getting bonus checks in the tens of millions of dollars.

The executives of these banks also benefit from the "too big to fail" subsidy. This means that creditors will lend to these banks at lower interest rates because they know the government will bail them out if the bank gets into trouble.

Corporate executives get ridiculously high pay in the United States (as opposed to Europe, Japan, or South Korea) because the government's rules of corporate governance allow corporate executives to essentially run companies in their own interest. The CEOs largely appoint the board of directors (a ridiculously plush sinecure) who in turn decide the CEOs' pay. In systems where the corporations are more directly subject to shareholder control, CEOs get paid far lower salaries.

Finally the pay of columnists and highly educated workers is inflated as a result of the fact that these workers are largely shielded from international competition. The laws make it difficult for companies to bring in foreign professionals to undercut the pay of doctors, lawyers, columnists, even if they are every bit as competent as the native born workers they would be replacing.

By contrast, trade policy was deliberately designed to put U.S. manufacturing workers in direct competition with the lowest paid workers in the world. Also, hotels, restaurant owners and other employers of low-skilled workers have no problem at all hiring undocumented workers at low wages to keep down pay in these sectors. This also is a policy decision -- the government has decided not to require these employers to obey employment law.

In short, the inequality that Pearlstein notes has nothing to do with the dictates of a market economy. It is the result of the people at the top rigging the rules to their benefit. They got the government to stack the deck in their favor and then hired people like Pearlstein to tell everyone that it was just the natural workings of the market.

It would have been useful to point this out in an article that presented the views of former Fed governor Robert Heller. Mr. Heller's views were presented as those of an inflation hawk who was worried that the Fed was going too easy in trying to boost the economy. He noted the inflation of the 70s and the recessions in 1980 and 81-82 that brought the inflation rate down.

It would have been worth reminding readers that these downturns were far less severe, measured in duration and increase in unemployment, than the current downturn. If the possible bad outcome is not as bad as the current situation, then there would appear to be little basis for concern about excessively easy monetary policy.

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