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Washington Post Myths About Its New Owner, Jeff Bezos Print
Sunday, 11 August 2013 07:38

In a piece that was ostensibly intended to dispel myths about Jeff Bezos, the new owner of the Washington Post, "Five myths about Jeff Bezos," the paper seemed intent on creating new myths. Its list of myths included two items which are largely true.

Myth # 1 is "Jeff Bezos is destroying independent booksellers." The piece implies that independent booksellers were already well on their way to collapse before Amazon came into existence telling readers:

"The year before, Barnes & Noble and the Borders Group captured nearly a quarter of all revenue from book sales."

With the two big chains getting less than a quarter of revenue, this means that independent stores and smaller chains got more than three quarters of revenue. By contrast, last year on-line sales, the bulk of which went to Amazon, accounted for 48 percent of total sales. While some of this growth came at the expense of the two big chains (Borders has gone out of business), most of it was at the expense of independent book stores.

It is possible to debate whether the loss of independent book stores is a net positive or negative (obviously consumers value buying items at Amazon or they wouldn't do it), but it is absurd to contend that Amazon did not hugely hasten the decline of independent book stores as his newspaper does here.

The other major non-myth on the list is myth #4 that:

"Amazon's key advantage is that it doesn't collect state sales tax."



Liberating the Post Office Print
Sunday, 11 August 2013 05:38

Gail Collins took up the Post Office and its large annual losses in her column yesterday. While she does make the point that the Postal Service has been hamstrung by Congress in its efforts to take advantage of its assets to move into new lines of business, this point deserves greater emphasis.

Congress mandated that the Postal Service should be self-sustaining in the same way as a private for-profit company. However it has repeatedly blocked the Postal Service from taking advantage of its enormous assets to move into new lines of business, primarily because it would mean increased competition for other businesses. In addition, as Collins notes, it has imposed a set of prefunding and accounting rules for its pension and retiree health benefits that are far more stringent than those used by any private business in the country.

Faced with the combination of restrictions on efforts to expand into new areas, a dwindling market for first class mail (the bread and butter for the Postal Service), and an impossibly stringent set of accounting rules, it is hardly surprising that the system would face large losses.

Good NYT Piece on Workers Defense Project in Texas Print
Sunday, 11 August 2013 05:33

This is a nice piece on a non-traditional organizing effort among immigrant construction workers in Texas.

Floyd Norris Notices Upward Revision in Corporate Profits Print
Saturday, 10 August 2013 08:07

Floyd Norris has a piece in NYT this morning reporting on the upward revision in profits in the GDP data released last month. It also notes some of the other major revisions. Good to see this being picked up.

They Are "Taming the Debt" Again at the Washington Post Print
Friday, 09 August 2013 07:13

The Washington Post had yet another news article with cheerleading for cuts to Social Security and Medicare. The piece told readers about the bad news that a number of experienced Republican congressional staffers were leaving their jobs, telling readers:

"Moreover, many observers worry that the exodus is an ominous sign that Republicans see low odds for significant progress toward taming the debt."

Of course many observers who are more concerned about promoting economic growth and reducing unemployment than arbitrary debt and deficit numbers would see this exodus as good news. Also, people who recognize that most seniors have little extra spending money will be pleased to see that the prospect of cuts to Social Security and Medicare may be fading. (The article seems to bemoan the fact that much of the decline in projected deficits is due to better growth and slower projected growth in health care costs rather than budget cuts.)

Perhaps the Post will have more balanced budget reporting once Bezos begins to restructure the paper.

Michael Gerson Doesn't Like Quantitative Easing and Misrepresents Bernanke's Statements to Make His Case Print
Friday, 09 August 2013 05:14

Michael Gerson used his column today to warn of the bad effects of quantitative easing, telling readers that it is concealing structural problems. To make his case, he completely misrepresented statements from Federal Reserve Board Chairman Ben Bernanke.

After referring to comments from Mario Draghi, the President of the European Central Bank, urging governments take steps to increase potential growth, Gerson tells readers:

"Outgoing Fed Chairman Ben Bernanke has been gently suggesting there are limits to what the Fed can accomplish and warning against counterproductive fiscal policies and confidence-shaking political confrontations. Jeffrey Lacker, president of the Richmond Federal Reserve, argues that economic growth is limited 'in large part, by structural factors that monetary policy is not capable of offsetting.'"

In this context readers would naturally believe that Bernanke was also warning about structural obstacles to growth, which is the theme pushed in the rest of Gerson's column. This is not true.

Bernanke was very clearly warning about the negative effects of the sequester and ending of the payroll tax cut, both of which reduced demand. Gerson is being dishonest when he is trying to enlist Bernanke as an ally in his assertion that the obstacles to economic growth at the moment are primarily structural. He quite clearly believes the opposite, which is what he told Congress in arguing for expansionary fiscal policy and also the reason why he would pursue his quantitative easing policy.

It is also ironic that Gerson cites Germany as a success story that has effectively dealt with its structural problems. Germany's growth since 2007 has been no better than growth in the United States. (Part of this is explained by its lower population growth, which means that it has lower potential growth.)

The main reason why Germany has an unemployment rate of just 5.4 percent, compared to 7.5 percent at the start of the downturn, is measures such as work sharing which encourage employers to keep workers on the job but with fewer hours. The average work year in Germany is almost 20 percent shorter than in the United States. This is a huge factor in explaining its high employment levels. Unfortunately Gerson neglected to mention this fact.

NPR Covers Trade Deficit, Sort of Print
Friday, 09 August 2013 04:27

One of my frequent complaints here at BTP is the tendency of the media to ignore the trade deficit. As an accounting identity, the trade deficit must be equal to the sum of the budget deficit and the deficit in private saving. This means that if we have a large trade deficit, then we must have either a large budget deficit and/or a large deficit in private savings. 

For whatever reason people don't like budget deficits. We get large deficits in private savings when we have wonderful developments like housing bubbles depressing household savings (i.e. spurring consumption) and fostering construction booms. Those who don't like crashes, don't like bubbles. In other words, there are good reasons to be concerned about the trade deficit because a large one implies economic developments that many consider bad.

Therefore I was happy to see that Morning Edition had a segment highlighting the reported drop in the June trade deficit with the usually astute Ryan Avent. Unfortunately, the segment may have misled listeners on the meaning of the data.

The highlight was a sharp drop in the size of the reported deficit, which fell from $44.1 billion in May to $34.2 billion in June, a decline of almost $10 billion. While this is good news, it is not uncommon to see large one-month jumps in the deficit. Most often they are reversed in subsequent months' data. For example, the reported trade deficit fell from $51.4 billion in January to $43.8 billion in February. It rose to $47.8 billion in March. It fell from $46.3 billion in November of 2012 to $36.3 billion in December. It then rose to $42.7 billion in January.

This erratic pattern in monthly data should have been noted. In fact, the reported deficit had risen by $4.0 billion in May, so much of the reported June decline was simply a reversal of large jump in May.

The piece went on to place the trade numbers in a context of other good news, including low unemployment insurance claims and a positive reading on the Institute for Supply Management's service index. These reports are good news, but again need context.

Unemployment insurance claims had been trending downward all year, even as job growth has remained weak. One possible explanation is that many of the people who are now getting laid off don't have enough work experience to qualify for benefits. People who have been intermittently employed in low wage and part-time jobs over the last two years will often not qualify for benefits. With a prolonged period of economic weakness like what we have seen since 2008, many workers (especially those prone to be laid off) will be in this situation.

Among the releases that give a less positive picture is the Bureau of Labor Statistics Job Openings and Labor Turnover Survey. The June report did show a modest uptick in job openings, but not in the manufacturing sector that was highlighted in the Morning Edition discussion. Openings in manufacturing have been trending down all year and are now 30 percent below their year ago level.

The other item that is worth mentioning in this context is the July employment report released last week. This is much more recent data on the state of manufacturing than June trade numbers. (Remember the trade data reports when goods enter or leave the country. The latter can be several months after they left factory.) The July employment report showed manufacturing adding a modest 8,000 jobs after being flat the prior month. Perhaps more importantly, it showed a decline in the length of the average workweek and the amount of weekly overtime of 0.2 hours, implying a substantial drop in the demand for labor. In other words, anyone looking for evidence of rising employment in manufacturing will not find it in the July employment report.

In short, it's good to see some attention paid to the trade deficit. It would have been useful if the data were placed in a larger context. 


Note: Typos corrected 3:30, thanks to Robert Salzberg.

NYT Forgot To Mention EU/ECB Contribution to High French Unemployment Print
Thursday, 08 August 2013 04:50

The NYT had an article on French President Francois Hollande's efforts to lower the unemployment rate. The article neglected to mention the role of the policy of the European Central Bank and European Union in raising unemployment in France.

The EU/ECB have forced the countries of southern Europe to have large cuts in government spending and tax increases. This has pushed the countries into a severe recession, thereby sharply reducing demand for imports from countries like France. 

This would be analogous to a situation in which the NYT was discussing the economic situation of Indiana without ever mentioning that the economies of Illinois and Ohio were in severe recessions. It will be very difficult for France to recover as long as the EU/ECB are insisting on policies that keep Spain, Portugal, Greece, and Italy in recession.

The People Who Turn 65 in the Next Decade Are Not 25-44 Today Print
Thursday, 08 August 2013 05:17

Robert Samuelson's column today notes the sharp slowdown in health care cost growth over the last 5 years and discusses the extent to which it can be attributed to the Affordable Care Act (ACA). He is rightly skeptical of claims that the ACA has been a major factor in the slowdown since it preceded the passage of the Act and we still have not seen most of its provisions put into effect.

However, at the end of the piece Samuelson gives three reasons why costs are likely to increase going forward. One of the reasons, that Obamacare will increase insurance coverage and therefore demand for services, is plausible. The other two are considerably less so.

He argues that economic recovery is likely to increase the demand for services and therefore push up costs. This would be true if there were reason to believe that the pace of recovery is about to accelerate sharply. While most forecasts project that growth will be somewhat more rapid in 2014 and 2015 than in the last three years, it is unlikely that this difference would have very much effect on prices.

The third reason is that the population is aging. Samuelson tells readers:

"average health costs for those 65 and over are more than triple those for people ages 25 to 44."

While this is true, people do not jump from being 44 to age 65. Furthermore, the average for the older group includes many people in their 80s and 90s with very high costs. It takes a long time for someone age 44 to become 80. In reality the impact of aging on health care costs is gradual and we are seeing it now as the baby boomers move into their 50s and 60s, periods in which they have higher costs than when they were in their 40s.

This process has been imposing upward pressure on health care costs for the last decade or more. The impact over the next 5 years will not be much different than it was over the last 5 years.

It is worth noting that there are huge potential savings from increased trade in medical services. However this is almost never mentioned in policy debates because American politics is dominated by hardcore protectionists. 

Do We Want High House Prices or Affordable Housing? Lessons on the Government Debt Print
Wednesday, 07 August 2013 13:17

Matt Yglesias asked this question of President Obama on his twitter feed. It's a very good question and reporters at President Obama's speech in Phoenix would have been asking it if they were awake.

In case folks missed it, President Obama touted immigration reform as one of the actions he would do for housing. He said that this would raise house prices.

There probably is some truth to this. Normalizing the status of 10-12 million immigrants living in the country will allow more of them to be homeowners, which should have some upward impact on house prices.

(Don't get too carried away on this one. The incremental boost to homeownership will be modest. Furthermore, these people were living somewhere. If they had been living in rental units, these units would become vacant. Then rents would fall, other things equal. That would cause some would be homeowners to rent instead and for some rental units to be converted to ownership units. In other words, don't expect to make your fortune on immigration reform sending the price of your home soaring.)

However this raises a basic question, why would we think that high house prices are good? Obviously high house prices are good for people who own homes. But they are bad news for people who are renting and hope to become homeowners or young people just starting their own households.

Saying that we want high house prices is in effect saying that we want to transfer wealth from those who don't own homes to those who do. That looks a lot like upward redistribution, which is not ordinarily an explicit goal of government policy, even if that is often an outcome.



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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.