As noted below, the NYT declared class war against school teachers and custodians, arguing that the public must focus on taking away their pensions. The prior note left out a very important point -- if the economists who make projections of pension returns knew arithmetic, then the pension funds would not be facing these huge shortfalls.

These "experts," all of whom draw high salaries in their working careers and much higher pensions than public employees (think of people like Harvard Professor Martin Feldstein, Boston University Professor Lawrence Kotlikoff, and Steve Goss the Chief Actuary for Social Security), all asserted that stocks would average 7.0 percent real returns even when the market was at its bubble peaks. If the market had performed as they had projected, then these pension funds would be just fine today.

In short, the biggest problem with these pension funds is that they listened to the country's leading economic experts in planning for the future. Unfortunately, the workers and the taxpayers will pay for the incompetence of the experts. The experts themselves are protected.  

The Washington Post adopted a new tactic in its ongoing campaign to cut Social Security benefits, highlighting a relatively trivial amount of mispayments or fraud, leading readers to believe that the program has major administrative problems. The Post devoted a major news story to a GAO report that found "1,500 federal workers might have received improper or fraudulent Social Security payments in the past several years."

There are just under 8 million people who receive disability benefits. Summing over 4 years would give approximately 30 million disability years of benefits. The GAO report identifying 1,500 federal workers who received benefits would imply 3,000 per years of improper benefits, assuming an average of 2 years of benefits per worker. This is equal to 0.01 percent of the beneficiaries of the program.

A mistake of this magnitude would warrant little or no attention in a newspaper reporting issues that affected people's lives in any way. However, it is not surprising that it would get substantial attention in a newspaper like the Post, which is on a campaign to cut Social Security and freely uses its news section to advance this agenda.

Apparently not. A lengthy magazine piece that discussed the music industry's costly efforts to track down restaurants and bars that play copyrighted music without authorization never mentioned the possibility that there could be alternative mechanisms for financing music in the Internet Age. Instead, it held out the hope that new technology may allow the industry to monitor every radio, computer, and cell phone so that Time Warner would know every time one of its copyrighted songs was being played.
The "Buy America" provisions of the stimulus package got huge amounts of ink from the NYT, the Washington Post, and other media outlets, all of which were anxious to feature economists denouncing them as protectionist. For some reason the NYT did not feel the need for similar denunciations in an article reporting on a bill that quite explicitly protects highly-skilled workers by imposing a tax for visas. The bill also is peculiar in that it is structured so that large U.S. companies would escape the tax. Only foreign-owned companies with relatively few U.S. employees would pay the tax.

In its discussion of the weak July jobs report the Post noted that the Fed could take steps to boost the economy. It listed the possibilities as: "pledging to keep interest rates low for even longer than now expected, cutting the interest rate on banks' reserves, or buying additional mortgage securities."

These are all relatively modest steps. There are measures that have been proposed that would have much more impact. For example, Greg Mankiw, President Bush's chief economist, and Oliver Blanchard, the chief economist at the International Monetary Fund, have both suggested that the Fed could set an inflation target of 3-4 percent as a way of lowering the real interest rate.

The Fed could also commit itself to buy and hold a large amount of government debt (e.g. $1 trillion to $3 trillion) to alleviate concerns that the debt will impose large interest burdens on the government in the future, thereby creating more room for aggressive stimulus. The Post should be listing the full range of options that are being put forward in policy debates, not just a small narrow set of relatively inconsequential measures.

It also would have been worth mentioning that the Census still employed 200,000 temporary workers in July. Most of these jobs will disappear in the next two months, which means that the economy will have to generate 100,000 jobs a month in August and September just to keep employment flat.

Columnists are given considerably more leeway than reporters, but serious newspapers still expect their pieces to bear some relationship to reality. This is why the Ron Lieber's column warning of a class war ("The Coming Class War Over Public Pensions"), with government workers as the new "haves," may leave many readers wondering about the NYT.

We have just seen the Wall Street crew get trillions of dollars of loans and loan guarantees to protect their multi-million dollar salaries and bonuses. The government routinely gets taken left and right by Halliburton and other defense contractors. Doctors and drug companies use their political power to ensure that they can charge far above competitive market prices.

With all these millionaires and billionaires getting even richer at the public's expense, why would there be a class war over public pensions? Clearly this is Mr. Lieber's desire, but so what?

Lieber does his best to whip up the hysteria, near the beginning of the article he describes the pension shortfall: "At stake is at least $1 trillion. That’s trillion, with a “t,” as in titanic and terrifying." Since we're doing the alliterations with "t," how about throwing in "two" as in a shortfall that is less than 2 percent of projected state and local government spending. Current spending is close to $2 trillion a year. If we assume that a shortfall must be filled over a 30-year period, then this would imply a gap that is less that 2 percent of projected spending over this period. 

That is not a trivial sum, but it is not obviously "titanic" or "terrifying," at least to adults who do not scare easily. The piece does eventually point out that most public pensions are not especially large and that in many cases these pensions are also substitutes for Social Security (many state and local workers are not part of the Social Security system), but that information only appears near the bottom of the piece, long after the call to class war.

The reality is that public pensions are better than private pensions, but this is largely because most private sector workers have little or nothing by way of pensions. With a few notably exceptions (police and fire pensions, along with those of IMF economists, tend to be very generous) most public sector pensions do not provide retirees with an especially high standard of living.

It is more than a little bizarre, and arguably more than a little offensive, that the NYT would publish an explicit call for an attack on the pensions of millions of workers who never earned more than $40,000 or $50,000 a year. This is in a country where people like Erskine Bowles (the co-chair of President Obama's deficit commission) get $350,000 a year serving as a director of a company (Morgan Stanley) that only exists today because of the generosity of the Fed and the taxpayers when they rescued it in its time of need. (What does a director of Morgan Stanley do to get $350,000 a year?) Of course, the full-time Wall Streeters can pocket 100 times as much.

Mr. Lieber obviously wants to direct public anger at school teachers and custodians rather than the people who hold real power and wealth in this country. It is a pathetic and disgusting exercise and the NYT should be embarrassed to provide Mr. Lieber with the ink and electrons for this effort.

Much of the whining over current and projected future deficits is couched in terms of inter-generational equity. The story goes that we are doing bad things to our children and grandchildren by running up a huge debt that will threaten their living standards. In this story, the bottom line is supposed to be the living standards of future generations.

This should leave the public wondering why it seems that absolutely no one among the deficit whiners (including the reporters and editorial writers) commented on the fact that the Social Security trustees report released yesterday showed much higher wage growth than the previous year's report. According to the new report, average annual wages (adjusted for inflation) will be 47.8 percent higher in 2040 than in 2010. Last year's report showed wages would be 39.1 percent higher in 2040 than in 2010.

This higher wage growth projection dwarfs the impact of any potential tax increases that could be necessary to deal with budget deficits. For example, the change from last year's projections to this year's projections, if it proves accurate, would have more than twice as much impact in raising living standards as a 3 percentage point increase in the payroll tax would have in reducing living standards.

If the deficit hawk gang was actually concerned about the living standards of future generations, it is inconceivable that they would not be discussing these new projections. The fact that they have completely ignored them suggests that their concern with deficit projections have nothing to do with the living standards of our children and grandchildren.

The Post wants cuts so badly that they just can't resist using its news section to push its agenda. In an article on the release of the new trustees reports for Medicare and Social Security, the article notes the projected shortfall in these programs and then tells readers: "but Democrats and Republicans have disagreed about the best approach and shied away from the political pain of paring benefits for older Americans in the highly popular entitlements."

A serious newspaper would point out that both Democrats and Republicans have shied away from any changes that would substantially improve the financial health of Social Security. This would include measures like raising the wage cap on the Social Security payroll tax. It would also include raising the tax rate itself, which poll after poll has shown is more popular than cutting benefits. A serious newspaper would also point out that the projected shortfall is far in the future and that there is no obvious reason that Congress should take steps to address it any time soon. A fix comparable to the 1983 fix could be put in place in 2030 and leave the program fully solvent until close to the end of the century.

The piece should also have noted that the Medicare Trustees projections show that Congress just eliminated 80 percent of the projected shortfall in the Medicare program. If this proves accurate, then this would be an enormous accomplishment.


The WSJ had a piece on the European Central Bank's (ECB) decision to buy a small amount of government bonds. It raises the question of whether this could jeopardize the ECB's credibility as an inflation fighter.

This is an interesting question. According to central bank folklore, credibility as an inflation fighter comes from being willing to impose a severe recession to squeeze inflation out of the system. Paul Volcker sits at the top in the Central Banker's Hall of Fame for his willingness to keep interest rates high through 1981-82 recession. The folklore tells us that we don't  want to lose this hard-earned credibility by allowing inflation to rise now.

It is worth noting that in its length and depth, the 1981-82 recession is being dwarfed by the current downturn. In other words, even if aggressive monetary expansion did lead to inflation that central banks subsequently felt necessary to rein in, the cost in terms of unemployment and lost output is likely to be less than we are now experiencing.

This should make more expansionary policy at present a no-brainer, but we have to remember, our central banks are run by people who could not see an $8 trillion housing bubble.


For those wondering what those Wall Street boys do to earn tens of millions a year in salary and bonuses, the NYT has part of the answer. The Wall Street boys rip off school districts and other governmental units who pay them high fees for creating complex financial instruments that they don't understand.

This exciting tidbit was conveyed in the lead-in to a story on the failure of the Obama administration's mortgage modification program (HAMP). That is a surprising assessment given the fact that purchase mortgage applications have dropped by more than 30 percent from year ago levels since the end of the homebuyer's tax credit on April 30th. Unless 30 percent fewer people feel like selling their homes in 2010 than 2009 (a relatively weak period for house sales), then house prices will be headed sharply lower. (This is based on a complex technical process known as "supply and demand.")

The issue of the direction of house prices is actually very relevant to the topic. The housing bubble has not fully deflated in many areas of the country. This means that government efforts to keep people in their homes are likely to still leave many people underwater. In other words, by design, the Obama program will be paying servicers and investors money for mortgage modifications that still leave homeowners with no equity in their homes. This makes HAMP a good mechanism for getting money to banks, but a very way to help homeowners.

It is not possible to assess the merits of this sort of mortgage modification program without a serious assessment of the future course of house prices. NPR excluded such a discussion with the unsupported assertion in its lead-in.

It's super silly season in Washington. The powers that be have decided that Social Security should be cut, so now anyone can say anything they want against the program, even if it is directly contradicted by the evidence.

In this spirit the WSJ told readers: "In 2010, Social Security expenditures will exceed receipts for the first time since 1983, the last time Congress enacted major changes to the program." This is not true. As trustees report clearly shows, the program is projected to have a surplus of almost $80 billion in 2010. It is true that tax receipts will be less than projected benefits, but that is not a relevant figure for the program since it also collects interest on the bonds held by the trust fund.


The Post should have reminded readers of this fact when reporting that: "Republican leaders criticized the package as a giveaway to labor and an undeserved bailout for profligate state governments." The package in question was a bill to provide additional funding for education and health care to states.

The NYT discussed the Obama administration's plans to extend President Bush's tax cuts only for households earning less than $250,000 a year. The article also reported on Republican claims that not extending the tax breaks for the wealthy would hurt the economy. It concluded by telling readers that:

"he [Treasury Secretary Timothy Geithner] dismissed as “myths” Republican arguments that tax cuts pay for themselves, by bringing in new revenues from economic growth."

It would have been helpful to note that this is not just Secretary Geithner or the Democrat's view. It is the near unanimous view of every economist who has examined the issue, including Republican economists. For example, Douglas Holtz-Eakin, a prominent Republican economist who was the chief economic advisor to John McCain in his presidential campaign, examined this issue when he headed the Congressional Budget Office. He used a wide variety of models and found that in the most optimistic scenario additional growth could temporarily replace 30 percent of the lost revenue. (Even this increase would largely disappear in the long run.)

The treatment of the issue in the article may lead readers to believe that the question of whether tax cuts pay for themselves is one that is actively debated by economists. In fact, it has long been settled even if some Republican politicians choose to ignore the evidence.

In a discussion of the impact of the BP oil spill, the NYT qualified the estimates of the size of the spill from the National Ocean and Atmospheric Administration (NOAA) by telling readers that: "NOAA is the same agency that devised the early, now-discredited estimate that the well was leaking only 5,000 barrels a day, one reason some people distrust the new report."

This is useful information for readers, since the fact that the agency had previously been off by a factor of ten in its earlier estimate of the size of the spill might suggest something about its competence and/or its integrity. This is relevant to the credibility that should be assigned to new estimates from the agency.

In the same vein, it would be appropriate to report on the failure of individual economists or organizations, like Harvard's Joint Center on Housing, to notice the $8 trillion housing bubble, when discussing the current views on the housing market and the economy.

USA Today has a nice piece showing stimulus spending by state. It shows that there is no link between spending and unemployment, in large part because much of the funding goes through preset formulas that do not respond to current unemployment rates.

The NYT had an article about Germany's relatively healthy economy, which is now growing at a healthy pace largely as the result of a surge of exports. The article also notes the effectiveness of Germany's work sharing policy which provides tax credits to companies for shortening hours rather than laying off workers. This policy has been even more effective than the article implies.

While the article tells readers that Germany's unemployment rate is 7.6 percent, this is the German government measure. This measure counts people who want full-time work but only have part-time jobs as being unemployed. By contrast, the OECD's methodology, which is similar to the one used by the United States, shows a German unemployment rate of 7.0 percent, roughly the same as before the downturn.

In an article reporting on a study that concluded that the health care reform bill will lead to substantial savings for Medicare, the Washington Post told readers:

"critics say trust fund solvency will only improve on paper, since actual savings from the Medicare cuts would have been spent to provide coverage for more than 30 million uninsured Americans."

This is a real trip to bizzaro world. The Medicare trust fund is an accounting entity. Improvements can by definition only occur on paper, or more accurately in computer entries. It is not clear what the Post thinks it means with this statement. 


The NYT headline told readers that, "Bernanke Says Rising Wages Will Lift Spending." Real wages have been virtually unchanged over the last year. Let's hope that the NYT got the story wrong and that Bernanke knows this.

Andrew Ross Sorkin argued that assessing fines against companies for misleading shareholders is unfair because it punishes the shareholders a second time. Actually, if shareholders know that their companies will be punished, hurting its stock price, if its top executives lie about the company's performance, then they have more incentive to ensure that they do not get lying executives. This is a desirable outcome since their lying will distort stock prices, and in principle, lead to misplaced investment.

Of course if shareholders really have very little control over companies then this increased incentive will have little effect. However, that would be a very serious indictment of the system of corporate governance.  

The NYT had an article on the hostility being directed toward the head of Hungary's central bank. The article implies that such hostility is misdirected, beginning the piece with the comment: "it’s not easy being a central banker in Europe — especially during the biggest economic crisis in a generation"

This comment is sort of like saying that it's not easy to be head of BP, especially in the middle of the largest oil spill in the history of the world. The reason that we are having the economic crisis is because of the failure of Europe's central bankers to notice the huge housing bubbles that were distorting economies throughout Europe and much of the world. If Europe's central bankers had been doing their job competently they would have acted to rein in these bubbles before they grew large enough to endanger the economy. Instead, they were obsessed with reaching their 2.0 percent inflation target.

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