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Homeownership Plummets and No One Notices Print
Wednesday, 01 May 2013 04:56

Okay, neither part of that one is exactly right. According to the Census Bureau the unadjusted rate of homeownership in the first quarter of 2013 dropped by 0.4 percentage points to 65.0 percent. The seasonally adjusted rate edged down by 0.1 percentage point to 65.2 percent. This may not be a "plunge" exactly, but either way you would have to go back to 1995 to find a lower rate of homeownership. (Can we get Alan Greenspan out here to give us another lecture on the glories of subprime and other innovative mortgages?)

It's also not quite right that no one noticed. There are some business reporters who have heard of the Census Bureau. Mark Lieberman had a piece highlighting the new data.

Keeping CO2 Emissions from Rising Would Be Costless Print
Wednesday, 01 May 2013 04:28

Brad Plummer has a useful post showing that with current policy in place we can keep CO2 emissions constant over the next three decades. The piece notes that this would be inadequate to prevent dangerous levels of greenhouse gases in the atmosphere; for that we would need substantial reductions in emissions.

It is worth calling attention to one comment that may mislead readers. At one point the piece tells readers:

"Some of these measures [continuing current policy], such as re-upping the tax credits for clean energy, would require Congress. (And that wouldn’t be free; the recent one-year extension of the wind credit, for instance, will cost $1.2 billion per year for 10 years.)"

It's unlikely that many readers have a clear sense of how much money $1.2 billion a year is relative to the budget. Spending is projected to average more than $4.7 trillion a year over the next decade. This means that the extension of the clean energy credits would cost less than 0.03 percent of projected spending. This likely would provide more information to readers than the dollar amount.

WAPO Complains that Europeans are "Impatient" for Wanting an End to Bad Economic Policy Print
Tuesday, 30 April 2013 07:11

A front page Washington Post article (print edition) had the headline "in impatient Europe, some see more debt as answer." It would be interesting to know on what basis the Post has determined that Europeans are impatient. Would it, for example, consider Americans impatient because they voted Jimmy Carter out of office when the economy was doing poorly in 1980 or George H.W. Bush in 1992? It is common for people to be upset by economic policies that are causing recessions and high unemployment, this might better be called "common sense" than "impatience."

The article also editorializes in the second paragraph, describing Europe as the "debt-ridden continent." It would be at least as appropriate to describe it as the unemployment-ridden continent" given the double-digit unemployment in many countries. It also questionable whether "debt-ridden" is an accurate description since in many countries the interest burden is not especially high. Arguably this is the best measure of the burden of the debt.  

Scary Uncertainty Over Obamacare Slows the Economy (Right) Print
Tuesday, 30 April 2013 05:10

In an article about problems with the implementation of Obamacare the NYT tells readers:

"Uncertainty over the law’s future hung over employers and investors throughout 2012. 'It impeded the recovery,' said the economist Mark Zandi."

It's difficult to see what this uncertainty would be and who exactly would be affected. The vast majority of large firms, the ones who employ more than 50 people and would face new obligations under the Affordable Care Act (ACA), already provide workers with health insurance. There seems little basis for the often expressed concern that firms can put themselves over the line by hiring a 50th worker, given the fact that firms can fire workers at any time for no reason in the United States. The firms that don't provide health care seem especially unlikely to be worried about dismissing a worker in order to avoid costs imposed by the ACA. (There is also a large amount of turnover, so a firm near the threshold could almost certainly quickly fall below the 50 person cutoff through attrition.

News reports have routinely repeated assertions from economists about uncertainty affecting the economy which have subsequently proven to be without foundation. For example, there were numerous reports in the business press last fall which claimed that uncertainty over the "fiscal cliff" was leading firms to delay investment. As it turned out, investment grew at a 13.2 percent annual rate in the fourth quarter of 2012. It grew at just a 2.1 percent rate in the first quarter of 2013.

When reporters present economists' assertions about uncertainty having an impact on the economy they should press them for evidence for this claim. That could prevent news stories from misleading readers in the future.

The Government Is Not Perfect at Picking Winners In the Economy Print
Tuesday, 30 April 2013 05:10

All those people who thought the government puts Warren Buffett to shame in picking winning companies must be embarrassed after reading Charles Lane's column in the Washington Post this morning. Lane told readers what a disaster Fisker Automotive proved to be, an electric car company that received $529 million in low-interest loans from the government in 2009. The company is now at the edge of bankruptcy.

Lane tells us that that the mistake was compounded by the fact that the loan made it easier for Fisker to attract private capital:

"All told, Fisker attracted $1.1 billion in private investment, the vast majority of which took place after it got the DOE loan. ...

"In other words, that’s more than a billion dollars in capital that can’t create jobs elsewhere in the economy — but might have, if the government had not propped up and promoted Fisker."

There are two important points here. First, the economy was in a free fall in 2009. There was a ton of capital available for investment. The idea that the $1.1 billion that Fisker attracted from private investors was somehow pulled away from other investments is fanciful at best. In more normal times there is an argument that government subsidized loans are pulling capital away from other areas of the economy. That was not a plausible story in 2009 nor is it a plausible story now. (We have a way of measuring this problem, it's called "interest rates.")

The other point is that it was inevitable that Obama's green energy program would produce some losers. So does Warren Buffett's investment portfolio. If Lane felt the same way about Berkshire Hathaway as he does about the government's investments he would be running columns telling us that Warren Buffett is inept because of his large investments in the oil company ConocoPhillips at the peak of the boom in oil prices in 2008.

Government investments in promoting technology will always be a mixed bag with both winners and losers. Anyone who wants to look at the question seriously would have to look at all the companies that received support and do a cumulative cost-benefit analysis. This assessment would be broader than just the return on investment, it would also look at spillover effects. (Ever hear of the Internet?) Such an analysis would have to take into account timing. For example, the opportunity cost of investments made in 2009 was close to zero since the resources would have otherwise been wasted.

However government programs of this sort will always have to deal with the enormous ideological bias of the media. This means that it is inevitable that they will face a Charles Lane who will find a loser to highlight and tell people:

"The Fisker debacle proves once again that, in the immortal words of former White House economist Larry Summers, 'government is a crappy VC.'"

For this reason, caution in such programs is well-advised.

Steve Rattner's Incredibly Low Expectations Print
Tuesday, 30 April 2013 04:14

It's a bit scary what passes for good news in the economy today. Steve Rattner had a NYT blogpost this morning that began by telling readers:

"On its face, Friday’s announcement that the nation’s gross domestic product expanded at a 2.5 percent annual rate in the first quarter was good news, following as it did an only marginally positive result for the previous three-month period."

Well, positive growth is better than recession, but we have to remember that we are operating at a level of output that is 6 percentage points below potential, according to the Congressional Budget Office. The potential growth rate is in the range of 2.2-2.4 percent. Even if we take the bottom end of that range, a 2.5 percent growth rate would still only close this gap at a rate of 0.3 percentage points a year. [Added note: potential GDP growth refers to the rate that the economy could grow if it were fully employed as a result of the growth of the labor force and increases in productivity. The economy has to grow faster than potential in order to make up the sort of gap in output it is now seeing.]

That means that with a 2.5 percent growth rate it would take us twenty years to get back to potential GDP. We can mark 2033 on our calendar for the celebration, just after the end of Chelsea Clinton's second term.

Apart from the new low for good news Rattner is also annoying for his persistent ability to highlight Social Security and Medicare as problems in determined defiance of the data. Social Security's costs are projected to rise by roughly 1.0 percentage point of GDP over the next 15 years as the baby boomers retire. That's roughly the same increase in costs that we saw over the last 15 years. It is a bit more than half of the size of the increase in military spending associated with the wars in Iraq and Afghanistan. What's the big deal?



George Will is Outraged Because Amazon Will Be Taxed Like a Mom and Pop Grocery Store Print
Monday, 29 April 2013 04:59

Yes, he is. In his column today he expresses his anger over a bill that would apply the same sales tax to Internet sales that people pay now when they go to their corner store. He scoffs;

"In a burst of the bipartisanship we are told to revere, a coalition of Republican and Democratic senators rose above party differences last week to affirm class solidarity. They moved toward a tax increase of at least $22 billion to benefit the political class at the state and local levels."

Let's see, that political class would be people like Rick Perry, the governor of Texas, and Jerry Brown, the governor of California. The class solidarity here is less than obvious. It's certainly less visible than George Will's class solidarity with rich people, including those who make their money by gaming the tax code instead of doing anything productive, as is the issue here.




The sales tax is regressive. It would be great to see it replaced with income taxes. It's not going to happen whether or not we tax Internet sales. Taxing Internet sales makes the sales tax less regressive because low income people buy less of their stuff on the Internet than high income people. This is simple -- whine away, but the story is really really simple. If you want to make the tax system less regressive and you want to make the economy more efficient (why would we subsidize Internet sales at the expense of brick and mortar stores?), then you support having Internet sales subject to state sales taxes.

Morgan Stanley Director Erskine Bowles and Alan Simpson Still Want to Cut Social Security and Medicare Print
Monday, 29 April 2013 04:42

The Washington Post gave Erskine Bowles and Alan Simpson another opportunity to push their case for deficit reduction, which includes plans for cutting Social Security and raising the age of eligibility for Medicare. The Post does not mention Mr. Bowles affiliation with Morgan Stanley. This could have something to do with his persistent refusal to ever include a Wall Street speculation tax in his deficit reduction plans.

Many other countries, including the UK have long had such taxes. Much of the European Union is likely to impose a tax of 0.1 percent on stock trades and 0.01 percent on derivatives. The Joint Tax Committee of Congress has projected that the 0.03 percent tax proposed by Senator Tom Harkin and Representative Peter DeFazio would raise almost $40 billion annually. Counting interest savings, this tax alone would meet almost 20 percent of the arbitrary $2.5 trillion deficit reduction target picked by Bowles and Simpson.

It is also important to note that Bowles and Simpson's claim about using the chained CPI for the annual Social Security cost-of-living adjustment seems deliberately misleading. They tell readers:

"The plan also includes a shift to the chained consumer price index to provide more accurate indexation of provisions throughout the budget."

While the chained CPI is arguably a better measure of the rate of inflation seen by the population as a whole, there is no evidence that it provides a better measure of the rate of inflation seen by the elderly. In fact the experimental elderly index constructed by the Bureau of Labor Statistics (BLS) shows that the current measure of inflation understates the rate of inflation seen by the elderly.

If Bowles and Simpson were actually interested in accuracy (as opposed to cutting Social Security benefits), they would propose having the BLS construct a full elderly CPI. They have consistently backed away from this idea, which could lead to higher Social Security benefits.

Reinhart and Rogoff #61,346: Stevenson and Wolfers Edition Print
Sunday, 28 April 2013 21:46

Betsey Stevenson and Justin Wolfers are offering their assistance as referees in the debate over the Reinhart and Rogoff (R&R) spreadsheet error. They tell us:

"It has been disappointing to watch those on the left seize on the embarrassing Excel errors but ignore this bigger picture."

Of course the real story is that people on the left have seized on the embarrassing Excel error to bring about a public debate on an incredibly important debate from which they had previously been excluded. Just to remind everyone, R&R is being used as a rationale for cutting Social Security and Medicare as well as many other policies that are slowing growth and creating unemployment across much of the world. The corrected Reinhart and Rogoff spreadsheet does not come close to supporting the grand claims about the dangers of public debt they originally made, nor does it address the serious questions of causality that have followed in the wake of the discovery of their Excel error.

So we have two Harvard professors who used their status to push through work that was central to the most important economic policy debates in decades, based on analysis that was by their own admission incomplete. They also refused to make any of the data available until long after it was being widely cited in these debates. And, they routinely encouraged political figures to infer causality from debt to growth, when they were careful to deny any such claims when challenged by other economists.

And our two referees are disappointed by the conduct of those on the left.

Robert Samuelson Tells the Middle Class and Poor that They Should Stop Expecting to Have Decent Lives Because His Rich Friends Want All the Money Print
Sunday, 28 April 2013 20:47

That is the best way to describe Robert Samuelson's column in Monday's Washington Post. I could go through the piece in detail and offer point by point rebuttals, but what's the point in killing innocent electrons? We've been here before.

Let's just take the first and most obscene of his inaccuracies. He tells readers that the idea that the non-rich could enjoy decent living standards rest on unrealistic assumptions beginning with this one:

"First, that economists knew enough to moderate the business cycle, guaranteeing jobs for most people who wanted them. This seemed true for many years; from 1980 to 2007, the economy created 47 million non-farm jobs. The Great Recession revealed the limits of economic management."

Actually, many economists do know how to restore economic growth (it's simple, spend money), however people like Robert Samuelson and his friends at the Washington Post are doing everything they can to prevent the government from taking the steps needed to restore the economy to full employment. FWIW, they also helped to bury the arguments of those of us warning of this disaster before the housing bubble grew large enough so that its collapse would wreck the economy.

(It is bizarre that Samuelson picks 1980 as the beginning of his era of prosperity. This was actually the beginning of three decades of wage stagnation for most of the population and the end of three decades of broadly shared prosperity.)

The other points in Samuelson's diatribe are equally off the mark, but who cares. He just wants to convince ordinary people that they should get over the idea that they have any claim to the country's wealth; it's all going to the rich.



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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.