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Commerce Department Issues Secret Report Showing Plunge in Housing Vacancy Rates Print
Saturday, 28 July 2012 07:41

Okay, it's not really secret. You can find it here, but the almost complete absence of media coverage might have led people to believe that the report was secret.

Anyhow, the numbers are striking. The report showed a decline in the rental vacancy rate from 8.8 percent to 8.6 percent. The vacancy rate for ownership units fell from 2.2 percent to 2.1 percent. While the quarterly drop by itself is not that impressive, it follows a sharp drop reported for the prior quarter. This suggests that the first quarter data was not a fluke, but rather indicative of a clear trend towards lower vacancy rates.

Comparing these numbers to prior years, the rental vacancy rate was 9.2 percent in the second quarter last year and 10.6 percent in the second quarter of 2010. This is the lowest number on the rental side since the early years of the bubble in 2001.

The vacancy rate on ownership units is down from 2.5 percent a year ago and a peak of 2.9 reached in 2008. It is important to remember that units change status all the time between rental and ownership, so the most important factor here is the general decline in the vacancy rate.

It is amazing that reporters ignore these data. The soaring vacancy rate in the years when house prices were rising rapidly was one of the ways to recognize that they were being driven by a speculative bubble. If supply is exceeding demand, then prices should not be rising. Unfortunately, most reporters and people in policy-making positions could not be bothered to look at these data back then. Apparently this is still the case.

Good News on Weekly Unemployment Claims and No One Notices Print
Friday, 27 July 2012 14:14

I have often used to space to harangue news outlets for making too much of relatively small changes in weekly unemployment insurance (UI) claims. After all, it is just one week's worth of data. The numbers are erratic and subject to substantial revision.

Still, I would have thought the decline in claims reported yesterday would have gotten some more attention. It wasn't so much the single week decline that was newsworthy as the fact that the 4-week moving average, 367,250 was very close to the low for the recovery that we saw back in February.

More rapid job growth usually does follow declines in UI claims, although the relationship is far from exact. Nonetheless, the new claims seen over the last month is consistent with a much more rapid pace of job growth than we have been seeing. My bet for July is now in excess of 160k with some upward revision to the June number.

That's still not really worth celebrating given our jobs deficit, but it is a step in the right direction.

Brooks Complains About the Monomaniacs Who Insist Earth Is Round Print
Friday, 27 July 2012 04:30

David Brooks concludes a bizarre column explaining our love for the Olympics with the ability to keep contradictory ideas simultaneously in our mind. We admire both glory of the winner and also the nobility of the good loser. 

He uses this observation to then criticize "monomaniacs."

"The world, unfortunately, has too many monomaniacs — people who pick one side of any creative tension and wish the other would just go away. Some parents and teachers like the cooperative virtues and distrust the competitive ones, so, laughably, they tell their kids that they are going to play sports but nobody is going to keep score.

"Politics has become a contest of monomaniacs. One faction champions austerity while another champions growth. ....

"The right course is usually to push hard in both directions, to be a house creatively divided against itself, to thrive amid the contradictions."

Obviously, the right course is usually to push hard in both directions. We should both use modern medicine to cure people of illness and also let them die because we believe the power of prayer is more important. We should both eliminate segregation and racial discrimination and preserve them because of the inherent superiority of the white race.

What the hell does Brooks think he is saying here? There are any number of issues where there is right and wrong and David Brooks believes that every bit as much as the monomaniacs he is criticizing. He has apparently decided that there is no right or wrong in the debate over fiscal policy.

That's fine, we would then expect a columnist for the country's most important newspaper to give us the evidence for this position, not to call people names because they believe that the evidence supports one or the other position. (It does support the case for growth.)

Oh well, at least the NYT is giving a job to a person without the skills to compete in the modern world economy. 

Horrors! Unpublished Study Used to Raise Health Questions About Fracking Print
Thursday, 26 July 2012 21:28

Elaine K. Hill, a doctoral candidate in Cornell University’s department of applied economics and management, found evidence that fracking is associated with the frequency of low birth weight babies. The findings of her study implied that for mothers living close to a fracking site, the probability of a low birth weight baby increased by 25 percent. 

While this might be important information for government officials and the general public to have when considering restrictions on fracking, New York Times reporter Andrew Revkin is outraged that an unpublished study is being widely circulated and could impact public policy. From his blogpost, it sounds like Revkin gave Hill a really serious grilling about the ethics of allowing her unpublished study to influence debate on a major national issue. (Don't you wish reporters would just once give the same sort of grilling to Jamie Dimon or some other corporate honcho?)

There are two problems with Revkin's outrage. First, while he wants to be a real tough guy and show that this study should not be taken seriously, absolutely nothing in his piece calls into question the main findings of the research. Revkin presents at some length the views of David Ropeik, who Wikepedia identifies as "an independent consultant to government, business, trade associations, consumer groups, and educational institutions."

While Ropeik appears angered about Hill's speculation on how fracking might affect the number of low birth weight children, he gives no reason whatsoever to question the main finding. Specifically, Ropeik does not in any way question the statistical relationship that Hill found between fracking and low birth weight children. If the study was as bad as he seems to think it is, it should have been easy to find at least some potential flaws in its statistical analysis. Apparently he didn't.



More TARP Bashing Print
Thursday, 26 July 2012 05:07

There is an interesting column by Betsey Stevenson and Justin Wolfers circulating on the web that could pass under the title "all economists agree." While I would add my name to most of the propositions on the list, at the risk of losing my economist license, I have to disagree with their comments on the TARP.

Stevenson and Wolfers ask us to:

"consider the widely despised bank bailouts. Populist politicians on both sides have taken to pounding the table against them (in many cases, only after voting for them). But while the public may not like them, there’s a striking consensus that they helped: The same survey found no economists willing to dispute the idea that the bailouts lowered unemployment."

Okay, let's try to put a bit of context here. The Wall Street banks were on life support in the fall of 2008. Without trillions of dollars of government loans and guarantees (much more came from the Fed than the TARP money that went through the Treasury), they would be dead, deceased, pushing up daisies, out of business. The boys and girls getting those huge paychecks on Wall Street were at Uncle Sam's doorstep pleading for help. There was no one else to save them from destitution.

In this context there were three main choices. One was to drag out Mitt Romney and give them a lecture about the free market and tell them the government is not about giving people stuff. In this case the banks go under leading to a full-fledged financial melt-down. In this story, the economy certainly takes a bigger immediate hit, but the advantage is that we have a Wall Street free world. Goldman Sachs, Citigroup, Morgan Stanley, J.P. Morgan and the rest would be history. They are in receivership, waiting to broken up and sold off. This parasitic sector that has led to so much waste, corruption and inequality is no longer a drag on the economy. Consider this short-term pain for long-term gain. (Just kidding about the Romney part, he supported the bailout.) 

The second choice is hand over the money, which is the route we took. Oh yeah, Congress did put conditions on the money, but we know that was just for show. One of the most disgusting things I've seen in my years in Washington were the excellent stories on how executive compensation was treated in the TARP that the Washington Post and Wall Street Journal ran after the TARP passed.



Reuters Entry in Worst Reporting of the Year Contest: Tells Readers "June New Home Sales Post Biggest Drop in Over One Year" Print
Wednesday, 25 July 2012 09:18

Reuters must be trying to win a Pulitzer in the bad business reporting category (sorry folks, you've got some stiff competition). The headline of a piece on the Commerce Department's report on new home sales for June warned of the largest drop in sales more than a year. Are you scared?

If you look at the data, you would notice that May had one of the biggest jumps in sales in the last year, raising the rate to the highest level since the fall of 2008. Furthermore, three quarters of the drop was explained by a 60 percent decline in new homes sales in the Northeast. That could be real, but my guess is that this is some artifact of reporting that will be corrected when these numbers are revised next month. (I have not heard about the collapse of the economies in in NY, NJ, and MA.)

A little context would be helpful on this one. If May and June's sales are averaged, we would be seeing a strong uptick in sales compared to earlier this year.
Washington Pundits Are So Cute When They Try To Figure Out the Obvious Print
Wednesday, 25 July 2012 05:07

Robert Samuelson's column lays out the factors that caused the huge surplus predicted for the last decade by the Congressional Budget Office to turn into a huge deficit. Samuelson cites analysis of the $12 trillion shift from the Congressional Budget Office (CBO) and two "non-partisan" groups, the Committee for a Responsible Federal Budget and the Pew Fiscal Initiative.

Samuelson and these groups are careful to say that blame for this shift is widely shared, but that the largest chunk stems from weaker than projected economic growth and changes in technical assumptions. If we look more closely at the weaker than expected economic growth and some of those technical assumptions, the picture gets a bit more interesting.

The economy grew much more slowly than expected in 2001 and 2002 because of the collapse of a stock bubble. It grew much less rapidly than expected in 2008 and 2009 because of a collapse of the housing bubble. Some of the "technical changes" were the result of much lower capital gains income than had been projected. That is what happens when a bubble bursts. (The official data probably understates the falloff, since it is likely that much capital gains income shows up as normal income.)

In short, the main reason that the CBO projections understated the deficits over the last decade was that it twice failed to recognize asset bubbles. In fact, the impact of this failure on projections is even larger since some items on the Samuelson deficit list would not have been there absent the slower growth, like the Obama stimulus.

So there is a clear villain in this story, economic analysts who were too incompetent to recognize two huge bubbles and the impact that their collapse would have on the economy. Unfortunately, in Washington policy circles, such failures are a badge of honor ("who could have known?" is the official motto in these parts), so these folks continue to hold their jobs and get regular promotions and increased authority.

While we might prefer to see people with better knowledge of the economy in positions of responsibility, there is a bright side. These jobs keep people without marketable skills employed.

NYT: He Said We Could Afford Obamacare/ She Said We Couldn't Print
Tuesday, 24 July 2012 20:59

The NYT ran a piece on the new Congressional Budget Office estimates of the cost and coverage rates for the Affordable Care Act following the changes required by the Supreme Court ruling. It concluded the piece with a classic he said/she said:

"Representative Tom Price of Georgia, chairman of the House Republican Policy Committee, said the law was unaffordable, and he pointed to the $1.7 trillion price tag mentioned by the budget office.

But Representative Allyson Y. Schwartz, Democrat of Pennsylvania, said the law was a good deal that would 'save $109 billion over the next decade, while increasing access to health care for millions of Americans.'"

Well that settles it, the paper has done its job.

How about telling us how large this sum is relative to projected income (about 0.85 percent)? How about as a share of projected federal spending (about  4.0 percent)? Maybe the paper could compare to the size of the tax cuts proposed by governor Romney (less than 50 percent)?

The he said/she said at the end of this piece is killing trees for nothing. It provides no useful information to readers. (We already knew that Republicans didn't like the plan and Democrats do.)  It would have required minimal effort to put these numbers in a context that provided useful information to readers.

Fun With Andrew Biggs and the American Enterprise Institute Print
Tuesday, 24 July 2012 15:07

Andrew Biggs, an economist at the American Enterprise Institute, is one of the more serious and careful people arguing conservative positions on policy issues. Nonetheless, he strikes out badly in trying to catch me in a contradiction. (Excuse the self-indulgence, consider this a carryover from my birthday boasts.)

Andrew has a blog post where he apparently believes that he has really got me [thanks gov wonk]. I have authored or co-authored several items recently on public pensions in which I argued that it is almost impossible to imagine scenarios in which pensions get returns on their stock holdings that are markedly worse than what they are assuming in their projections (e.g. here and here).

Andrew has my projected returns as averaging 8.9 percent in the current decade and 8.2 percent in the next two decades. (That's not quite right, but close enough.) He then pulls out his gotcha, a paper from 2000 in which I projected stock returns of 3.4 percent for the first two decades and 3.5 percent for the 2030s. (In a note he points out that he forgot to add 2.8 percent for the inflation rate assumed by the Social Security trustees, whose assumptions provided the basis for my projections.)

So Andrew has me projected 8.9 percent returns and 8.2 percent returns when I was making projections of 6.4 percent and 6.5 percent back in 2000. Should I be wearing a paper bag over my head for the next year in shame?

Perhaps I should, but not because of Andrew's discovery. In that 2000 paper I wrote:

"It is reasonable to believe ... that stocks are temporarily over-valued, and that price-to-earnings ratios will soon fall back to more normal levels [this is the ratio of stock prices to trend earnings]. However, if this is the basis for assuming that stocks will provide their historic rates of return in the future, it would be necessary to include a large decline in stock prices in the projections."

Andrew probably missed it, but we did in fact have a large decline in stock prices (two actually) between 2000 and the present. That is why I am now confident that we can expect higher rates of return in the future. In other words, I have been 100 percent consistent in my projections of returns, what has changed is the market itself.

I appreciate Andrew's efforts to remind everyone that I called the stock bubble back in 2000 (actually first in 1997).

WAPO Still Blames Euro Zone Crisis on Deficits Print
Tuesday, 24 July 2012 14:42

It must be very hard to get news at Fox on 15th Street. In the Post's little primer giving "steps of the euro crisis" step number 3 tells us about the end of cheap credit:

"Following the U.S. credit crisis in 2008, Greece reported a huge deficit increase that suddenly made investors worried about its ability to pay back its loans. High deficits in Portugal, Spain and Ireland caused the price of credit to rise in those countries as well."

This is an interesting story, but it left out an important part of the picture. Spain and Ireland had been running large budget surpluses prior to the downturn. They were running large deficits in 2008 because they had housing bubbles that collapsed and sent their economies plummeting into recession.

Apparently the Post could not find information about these bubbles or the path of government finances in euro zone countries prior to the downturn. 

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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.