The NYT had a peculiar front page article in which it portrayed Defense Secretary Robert Gates as a budget cutter even though he wants to increase the defense budget by 1.0 percent a year in excess of inflation. It notes that he doesn't want the government to buy some of the weapons system being pushed by Congress. It then comments:
"In one of the paradoxes of Washington budget battles, Mr. Gates, even as he tries to forestall deeper cuts, is trying to kill weapons programs he says the military does not need over the objections of members of Congress who want to protect jobs."
It is not clear what the article views as paradoxical. Increasing the defense budget by 1.0 percent a year in excess of inflation does not imply an austere budget. Nonetheless it also doesn't imply an infinite budget. There is nothing paradoxical about the defense secretary having to set priorities in this context.
The article also includes the peculiar comment that defense spending:
"has averaged an inflation-adjusted growth rate of 7 percent a year over the last decade (nearly 12 percent a year without adjusting for inflation), including the costs of the wars."
Inflation has not averaged anywhere near 5 percent over the last decade, so the 12 percent nominal growth rate is inconsistent with the 7 percent real growth rate.
Politicians routinely praise small business as the source of all good. In reality, small businesses, just like large businesses, are a mixed bag. While they can be a source of economic dynamism and good jobs, many small business owners rip off their workers and their customers, cheat on their taxes, and contribute little of value to the economy before they fail.
It is the job of the media to report on small business with clear eyes, not just repeat happy-talk nonsense from politicians. Therefore, it was disappointing to read a NYT article on a package of special loans and tax breaks for small businesses that began:
"Perhaps the last best hope of Democrats to pass legislation aimed at creating jobs before the November elections seemed to be crumbling in the Senate on Wednesday as Republicans signaled that they would block a bill to expand government lending programs and grant an array of tax breaks to small businesses."
Why would the article assume that the bill is "aimed at creating jobs?" Yes, this is what the politicians said about the bill. But --- hold onto your hats boys and girls -- politicians sometimes say things that are not true.
An alternative explanation is that politicians want to give money to small businesses, a constituency that can be very influential in many upcoming congressional races. Many of the features of this package, such as tax breaks that apply to past actions, look more like measures to give businesses money than to create jobs.
Rather than attributing motives, it would be more appropriate to simply report the bill's contents and what various parties say about it.
That is what readers of the article on David Cameron, the new Prime Minister would be led to believe. After all, the piece told readers that the previous Labor government's policies had turned:
"...Britain into one of the most heavily taxed, tightly regulated countries in the developed world, with government accounting for about half the work force and half of the economy."
The NYT's assertion is at odds with the data. In 2008 (the last year for which full data are available), according to the OECD, the share of government expenditures in GDP in the UK was 47.5%. This is slightly above the 45.6 percent average for the European countries in the OECD, but below the 52.7 percent share in France, the 50.1percent share in Belgium and the 48.7 percent share in Italy. In other words, the government share of the economy in the UK is somewhat above the average for wealthy European countries, but certainly not at the top in this category.
The article also told readers that government employment accounts "...for about half the work force." According to the Office of National Statistics in the U.K., public employment accounts for 21.1 percent of total employment.
The article includes numerous other comments that only serve to express disapproval of the UK welfare state rather than provide information. For example, it describes the new government's effort to "dismantle Britain’s sprawling bureaucracy." No less information would be provided without the word "sprawling."
At one point it reports on plans to establish: "...independent but publicly financed schools in which head teachers and their staff would be freed from the stifling oversight of local councils and the central education authorities." The same information could be provided without the word "stifling."
Clearly the New York Times supports the agenda of the new government, but expressions of support for a government or political party belong the editorial page, not the front page.
USA Today had a major story warning that middle-class families may be hit by the estate tax. It warns that people with estates of just a million will be subject to the tax if the law is not changed. The article never points out that the tax will only affect the amount of the estate over $1 million, nor does it mention that the exemption is per person, so that a couple can easily pass $2 million on to their heirs and escape all tax liability. In short, this article gave readers absolutely no idea of the issues involved and it is likely to make many people, who will at most be trivially affected by the estate tax, to believe that they face serious liability.
The article also bizarrely asserts that partisanship has prevented a resolution of the issue. This is not true as can be clearly seen from the evidence presented in the article. While most Republicans support lowering or eliminating the estate tax, there are also some Democrats who have held out for lower rates. The article presents no evidence whatsoever that partisanship is preventing a resolution, as opposed to a conflict between people who want to pay lower taxes and others who want them to pay higher taxes.
This article discusses the Obama administration's housing policy, which seems to be moving away from an exclusive focus on homeownership. The article notes that many moderate-income people who bought homes in the last decade ended up losing them.
It would have been worth mentioning the housing bubble in this context. In many cases, it might have made sense for families, in principle, to become homeowners in the years 2002-2007, but not when it meant purchasing homes at bubble-inflated prices. The bubble could have been easily detected by a simple examination of price-to-rent ratios and other fundamentals. Unfortunately, the vast majority of housing professionals, including the people at HUD and Fannie Mae and Freddie Mac, were too lazy to do this sort of assessment. As a result, millions of moderate-income families bought homes that they were not able to keep.
Business people always want more money. That is part of a being in business. (Has Goldman Sachs or General Electric ever said they want lower profits?) This means that their spokespeople can be counted on to complain about taxes, regulations, wages or anything else that costs them money. Sometimes what they say is not true.
This can be clearly seen with current complaints that fears about regulation and higher taxes are discouraging hiring. This claim can be easily tested. If firms are in a situation where they would be hiring except for these fears, then we should be seeing an increase in the average number of hours worked per worker. We are not seeing an increase in hours worked that is at all out of line with prior recoveries. In fact, in the June data, hours worked fell.
Reporters should examine whether the claims of business people are plausible instead of just repeating them.
Market Place radio did a segment on the estate tax this morning and neglected to tell listeners that the tax is a marginal rate that only applies to the value of an estate above a cutoff. It also got the pre-Bush tax cut rate wrong.
Therefore when it told listeners that the estate tax will revert to the 2001 level next year if nothing is done, it likely left them hugely confused about the tax rate. The piece said that estates of more than $1 million would face a 55 percent tax rate. This would have led listeners to believe that an estate worth $1.1 million would face a tax liability of $605,000.
In fact, the first million would face no tax liability and the next $100,000 would be taxed at a 37 percent rate, making the total liability $37,000.
USA Today notes a decline in the percentage of people who expect to receive their Social Security benefits. The first sentence of the piece implies that the loss of confidence is due to that fact people have been: "battered by high unemployment and record home foreclosures."
While the recession could explain the loss of confidence in Social Security, it is also possible that the huge public relations campaign by Peter Peterson and others has played a role. Peterson, a Wall Street investment banker, has pledged $1 billion to a foundation that has cutting Social Security and Medicare as its major goals. He has spoken widely around the country telling people that Social Security is going broke and that it has no trust fund. He has enlisted prominent political figures, including former President Bill Clinton in this effort.
There are other efforts to undermine public confidence in Social Security, most notably President Obama's deficit commission. Former Wyoming Senator Alan Simpson, one of the co-chairs of this commission, has also frequently insisted that Social Security is going broke.
It is possible that these public relations efforts have had their intended effect of undermining confidence in the Social Security. The article should have at least noted this possibility.
The Washington Post felt that it was important to tell readers that the stimulus was very unpopular in a working class Pennsylvania district. However, it did not point out that a main reason that it is unpopular is that voter confuse the stimulus with the TARP bank bailout, which the paper strongly supported.
According to the article:
"Democratic pollster Mark Mellman said disgust with the stimulus and anxiety about the deficit are 'really a metaphor for wasteful government spending.' From the perspective of many voters, 'a lot of their money has gone out the door to bail out big banks and big corporations while their jobs have been lost.'"
This is a pretty direct statement that the TARP remains incredibly unpopular and that voters tend to confuse the stimulus with the TARP. A serious newspaper would have made this point. It is not that the voters object to measures that create jobs, they object to measures that hand banks money.
The housing wealth effect -- the idea that people's consumption is determined in part by their housing wealth -- is one of the oldest concepts in economics. Apparently the NYT still has not heard about it.
An article about the consumption patterns of the wealthy made no mention at all of their housing wealth. The economy lost around $6 trillion in housing wealth with the collapse of the bubble, a disproportionate share of this wealth was held by the wealthy. It would be very surprising if their consumption did not decline in response to this loss of wealth. (The housing wealth effect is usually estimated at 5-7 cents of additional consumption each year for every additional dollar of housing wealth.)
The NYT reported that negotiations between Hungary and the IMF and EU on the release of additional funds reached a deadlock over the weekend. Buried deep in the article, the NYT reported that:
"The I.M.F and E.U had criticized Hungary’s decision to impose a special tax on financial institutions, saying it would send the wrong signal to investors and could hurt economic growth."
This is striking since apparently the IMF and the EU are insisting that Hungary tax measures like cutting benefits for retirees rather than tax banks. This would have been worth publicizing.
The IMF has publicly claimed that it supported making the banks and either financial institutions pay more towards supporting government budgets. The effort to force Hungary to get rid of its bank tax, apparently accompanied by the threat of withholding funds, suggests that it is not following in practice the position that it has taken in public. This contradiction merits attention from the media.
That must be what NYT readers must be asking after seeing unemployment benefits described as "deficit-bloating government spending" in an article about the problems facing those who have lost their benefits and the prospect that Congress will vote to extend benefits. While this view may express the reporter or editor's opinion, it conveys no information whatsoever to readers.
The article also asserted that Congress is reluctant to extend benefits because: "fears about the country’s skyrocketing deficit, which are at the heart of Republican objections, have gained growing prevalence."
The article does not say how it has determined that fears about deficits ("skyrocketing" is more editorializing) explain the Republicans' motivations. Most of the Republicans expressing these concerns had little problem supporting the Bush tax cuts or spending on the wars in Iraq and Afghanistan, all of which added to the deficit. This may call into question their professed concerns about deficits now. They may just not want to give the Democrats a victory or they could hope that by making the economy worse the the electoral prospects of Republicans will be improved in November.
The reasons that politicians give for their actions are often not the true reason. Since reporters cannot typically know the true reason, they should just tell readers what the politicians say rather than trying to explain their motives.
The NYT had a piece reporting on how banks may alter their business practices in order to make up for provisions in the financial reform bill that could reduce profits. The article notes that banks may start charging for some services that they currently provide free to customers. For example it reports that banks may no longer offer free checking, instead charging most customers fees for their accounts as a way to make up for lower margins on credit and debit cards.
The piece then quotes J.P. Morgan CEO Jamie Dimon:
“If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger. ... Over time, it will all be repriced into the business.”
Actually, this is not typically true. If a particular restaurant charged high prices for its drinks in order to subsidize its burgers, then we would expect many customers would just buy the burgers and order water. The restaurant would only be able to get away with its burger subsidy strategy if it either did not offer the customer the choice of just getting the burger or if there was collusion with other restaurants. This suggests collusion in the highly concentrated credit and debit card industry, which would mean that anti-trust action would have been appropriate in the absence of the restrictions in the new law. The implication is that banks used their market power to have customers subject to overdraft fees or users of debit cards subsidize the checking accounts of customers who did not paid these fees.
It also is worth noting that banks' profitability will not necessarily be restored to pre-regulation levels. This would only necessarily be the case if banks were just making a normal profit, below which they would go out of business. Certainly J.P. Morgan and other large banks are making more than a normal profit.
As the continued interest in the thoughts of Alan Greenspan shows, there is absolutely no amount of failure and incompetence that can get a person removed from the ranks of wise people once they have held an important government office. In keeping with this spirit, the Washington Post turned to Franklin Raines, a former director of the Office of Management and Budget (OMB), to get advice for Jack Lew, the income director, on dealing with the deficit.
Mr. Raines was a past director of OMB, but his greatest claim to fame was probably his tenure as CEO at Fannie Mae, which ended in 2004 due to an accounting scandal. While Fannie and Freddie are not the villains of the housing bubble that the right likes to claim (private issuers of mortgage backed securities were far bigger sinners), the mortgage giants were incredibly irresponsible in their failure to recognize the bubble (which was already evident by 2004) and to adjust their lending accordingly.
This is why it is more than a bit infuriating to see Mr. Raines tell us that:
"Most of the long-run deficit is composed of the interest on debt piled up because we were unwilling to pay today (or over an economic cycle) for the spending we want today."
Yes, we did not run up huge surpluses in prior years in anticipation that there would be a huge housing bubble, the collapse of which would devastate the economy and require massive government stimulus to restore growth. I suppose that we can all plead guilty on that one.
[Addendum: Yes, I had earlier written in Harold Raines, which I corrected after a reader e-mailed me. The cause of the confusion is of course the legendary Chicago White Sox outfielder, Harold Baines.]
When he was Fed chairman, Alan Greenspan was almost a cult figure, with the media treating every pronouncement as a gem containing great wisdom. His status is somewhat lower now that is apparent that his incredible mismanagement of the economy has given us the worst economic crisis since the Great Depression.
This raises the issue of why the media, or anyone else, should care that Alan Greenspan now thinks that it would be a good idea to let the Bush tax cuts lapse in their entirety. Those who care about such trivia may recall that Mr. Greenspan had originally been an important advocate of these tax cuts. His stated reason was that he was concerned that the government would pay off its debt too quickly.
A NYT blogpost noted the rise in labor force participation among older workers and the decline in participation among younger workers. It lists the fall in stock prices and therefore 401(k) values as one reason for the rise in older workers' participation.
This is not likely to be an important factor, since few older workers had a substantial amount of stock even before the crisis. The loss of housing equity was likely a far more important factor in causing older workers to remain in the workforce. For the vast majority of older workers housing equity is their major source of wealth.
(The piece also lists the rise in the minimum wage as a reason that younger workers may be leaving the labor force. There is a vast amount of economic research that indicates that minimum wages have very little effect on the employment of younger workers.)
In its report on Goldman Sachs $500 million settlement of its case with the SEC, NPR described Goldman as a "survivor" of the financial crisis. While Goldman obviously did survive the crisis, it only did so with massive assistance from the government. This included loans through the TARP, loans and loan guarantees from the Federal Reserve Board and the FDIC, and the payment of $13 billion in obligations from AIG. However the most important form of assistance stemmed from the Fed's decision to allow Goldman to become a bank holding company in the middle of the crisis, giving it the explicit protection of the Fed and the FDIC.
Describing Goldman as a "survivor" may imply that it managed to get through the crisis by its own ingenuity and mastery of finance. In fact, Goldman survived in the same way that an earthquake victim survives when the rescue squad digs them out from the rubble and rushes them to the emergency care ward. Its ingenuity in this context was only in its ability to get its political allies to come to its aid with enormous amounts of taxpayer dollars while demanding almost nothing in return.
Btw, it would be interesting to know how much Goldman made on the deal for which it is paying this fine. If the fine is not many times larger than the profit, it is not sending much of a message. The probability of getting caught in this sort of fraud is very low. It is a safe bet that the SEC never would have brought its case if the participants at Goldman had not been incredibly foolish in leaving a substantial paper (e-mail) trail. Had they been somewhat smarter, the SEC would have had nothing with which to make their case.
Given the low probability of detection, a fine has to be very large relative to the potential gains from fraud in order to provide an effective deterrence. This, and other pieces on the settlement, never even discuss this issue.