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Housing Starts Fall in February, WAPO Talks About Permits Print
Wednesday, 21 March 2012 07:20

Okay, we should all be happy that the economy seems to be growing more rapidly that it was at this time last year, but can we try to be a little serious about this. The Census Bureau reported that housing starts fell by 1.1 percent in February. That's not a big deal, starts had been trending upward and the monthly numbers are always erratic, but nonetheless a fall in starts is a negative sign.

Apparently, the Post did not want to utter a discouraging word. Its business digest section only discussed the 5.1 percent rise in permits for the month, never mentioning the decline in starts. It also featured a graph showing the rise in permits which was mislabeled as a rise in starts (print edition only).

The Post Asks If the Fed Could Do More on Jobs Print
Wednesday, 21 March 2012 07:15
The piece discusses more aggressive actions that Bernanke could take, such as targeting a higher rate of inflation, a policy he advocated when he was still a professor at Princeton. This is a good article.
The Post Forgot to Mention that the Ryan Plan Would Eliminate the Government Print
Wednesday, 21 March 2012 07:01

The Post probably didn't have room in the piece for such small points, but when it told readers that the Ryan plan:

"calls for spending cuts and tax changes that would put the nation on course to wipe out deficits and balance the budget by 2040."

It would have been reasonable to point out that it gets to this balance by virtually eliminating the non-defense, non-Social Security, and non-health care portions of the budget. According to the Congressional Budget Office's analysis of the Ryan plan (Table 2), all spending on items other than health care and Social Security would be reduced to 4.75 percent of GDP by 2040 and to 3.75 percent of GDP in 2050.

The defense budget is currently over 4.0 percent of GDP and Representative Ryan has indicated that he wants to leave it at this level. That would leave little for the Justice Department, Education Department, Park Service, education, transportation and everything else government does in 2040 and nothing in 2050. That fact would have been worth pointing out in this article.

Representative Ryan Calls for Eliminating Park Service, FDA, Justice Department, and Just About Every Thing Else in Government and Media Don't Notice Print
Wednesday, 21 March 2012 05:00

House Budget Committee Chairman Paul Ryan is supposed to be a brave and serious thinker. That's how the Washington punditry treats him. Last year, the Peter Peterson gang gave Ryan a "Fiscy Award" for "leading the way in promoting fiscal responsibility and government accountability." Politico made Representative Ryan its "health care policymaker of the year." Ryan is a regular guest on the Sunday talk shows and he can always count on a warm reception from the very serious people.

For this reason when Representative Ryan again proposed a budget that would shrink non-defense spending outside of Social Security and health care programs to zero by 2050 the proposal deserves real attention. According to the projections of the Congressional Budget Office (Table 2), Representative Ryan's budget would shrink the category of defense and non-defense discretionary spending, plus non-health entitlements to 3.75 percent of GDP by 2050.

Since Representative Ryan has said that he wants to keep military spending near its current level of 4.0 percent of GDP, this would leave no money to pay for the Justice Department, the Food and Drug Administration, Education, the National Institutes of Health or anything else that the government does.

This shrinking of non-defense spending to zero was also in Representative Ryan's budget last year, however he could have been credited with an honest, if incredibly foolish, mistake. However he has now gone on record with the same proposal in 2012, presumably indicating that this budget does in fact reflect his views and the views of the Republicans in the House, if they again approve the budget, as they did last year. 

It is remarkable that this extraordinary proposal by Representative Ryan has not gotten more attention from the people who think so highly of him in official Washington. Apparently they consider the elimination of most of the government to be a very reasonable suggestion.


"Right to Work" Means the Government Redistributes from Union Supporters to Non-Supporters Print
Wednesday, 21 March 2012 04:40

The NYT began an article discussing a "right to work" measure in Minnesota by describing it as a "measure ... that would allow workers to avoid paying fees to unions they choose not to join." It would have been helpful to remind readers that under federal law a union is legally obligated to represent all the workers in a bargaining unit regardless of whether or not they choose to join the union.

This rule means that workers who do not join the union not only gain from whatever wage and benefit increases the union negotiates with the employer, they also are entitled to the union's representation in any disputes that are covered under the contract. For example, if the employer wants to discipline or fire a worker who is not a member of the union, the union is obligated to represent this worker in the same way as if they were a dues paying member of the union.

In this context, the Minnesota measure means that workers who support a union can effectively be required to pay for the representation of workers who do not support the union. This is not an obvious step toward promoting individual freedom.

Contrary to what the article asserts, every worker in Minnesota can already "avoid paying fees to unions they choose not to join." They have the option to not work at a company where there is a union contract that requires workers to pay for their union representation.

This measure is about taking away rights, not extending them. If it were approved, workers would no longer have the right to sign a contract that required that everyone who benefited from union representation paid for this representation. This is a case of the government interfering with freedom of contract.

It is a Fact that Charter Schools Don't on Average Improve Performance, Not Just Something that the Teachers' Union President Says Print
Tuesday, 20 March 2012 07:02

The NYT had a bad case of he said/she said reporting this morning in an article that reported on a panel's recommendations for improving the nation's education system. The article noted the panel's recommendation for increased the choice of schools available for parents to select among. It then cited comments from Randi Weingarten, the President of the American Federation of Teachers, saying:

"school choice options like vouchers and charters, which use public funds but are run by a third party, have not proved to be sustainable or to improve schools."

This is not just something that Ms. Weingarten says, it also happens to be true. Extensive research has found that the vast majority of charter schools do not result in better performance by standardized test measures than the public schools, and a substantial portion do markedly worse.

The NYT should have pointed out that Ms. Weingarten's assertion was true and not left it to readers to try to decide between competing claims. The NYT's reporters have the time to investigate these claims, its readers do not.

More Mind Reading at the Post Print
Tuesday, 20 March 2012 05:23

The Washington Post is quickly becoming an employment service for psychics. An article on the Republicans' latest budget and tax proposals, which will reduce tax rates on corporations and the wealthy, tells readers that Republicans believe that their plan "will spur economic growth and provide them with a politically potent election-year message."

Reporters know that politicians do not always say what they believe. This is why real newspapers only report what politicians say. Only psychics would try to tell people what politicians actually think.

This piece also wrongly implies that reducing the number of tax brackets from 6 to 2, as the Republicans propose, is connected to tax simplification. It isn't. To calculate one's taxes, it is necessary to go to the tax tables and see what you owe given your income level. This is the same process regardless of whether there are 2 tax rates or 200 hundred. (Thanks to Robert Salzberg for calling this one to my attention.)

The Value of the Dollar and Manufacturing: Does the Post Know Any Experts Familiar With Arithmetic? Print
Tuesday, 20 March 2012 04:45

Readers of the front page WAPO piece on manufacturing productivity will assume that neither the Post nor any of the economic experts it consults have heard of arithmetic. The piece points to research showing that manufacturing productivity has been overstated. While it is good to see that the Post has finally noticed research that many of us have talked about for years, the Post grossly misrepresents the issues concerning manufacturing productivity and employment.

The Post presents the question as being one of whether higher productivity or increased imports are responsible for job loss in manufacturing. Those familiar with arithmetic know that the answer is that both are responsible.

Arithmetic tells us this because we know that our net imports of manufactured goods are equal to almost one-third of the manufactured goods we consume. If we produced these goods in the United States then manufacturing employment would rise by close to 40 percent.

On the other hand, the increase in the efficiency of manufacturing production has also affected the demand for labor in the sector. If productivity had not improved then more people would be employed producing the same amount of manufactured goods. While we would have lost some output due to import competition if productivity had not improved, there are sectors of manufacturing that are still subject to limited import competition. In these sectors higher productivity translates fairly directly into fewer jobs. 

Insofar as productivity growth has been exaggerated due to a failure to accurately measure imports, as the research cited in this piece shows, it means that a larger portion of job loss has been due to imports and a smaller portion is attributable to productivity growth. However, it doesn't change the fact that manufacturing productivity growth has still been strong and that both have been important factors explaining job loss.

Remarkably, this piece never once mentions the value of the dollar. The dollar directly affects the competitiveness of U.S. manufactured goods. A 10 percent fall in the real value of the dollar relative to the currencies of our trading partners has the same impact on competitiveness as a sudden surge of 10 percent in labor productivity.

As a historical matter, the United States went from adding jobs in manufacturing to losing jobs when the dollar surged following the East Asian financial crisis in 1997. The decline accelerated as the dollar continued to rise through the end of the 90s.

It is bizarre that a major piece on manufacturing employment would never mention the value of the dollar. This would be like reporting on patterns of gasoline consumption without ever talking about the price.

Healthcare Costs and Household Income: Median versus Average Print
Monday, 19 March 2012 07:01

The Post's Wonkblog had an interesting post about a new study showing that the cost of health insurance for a typical family will be equal to the median family income by 2037, if current trends continue. Unfortunately, the post inaccurately reported that the comparison was with average family income.

Given the growth of inequality in the last three decades this makes a big difference. According to the Census Bureau, median household income in 2010 was 49,445, whereas average income was $67,530. Perhaps more importantly, average income by definition grows in step with the economy whereas median income has been growing slowly as a result of upward redistribution. (The confusion actually is in a chart in the original paper, so Wonkblog can be forgiven for not catching it.)

The story is still an important one, if not quite as dramatic as reported. The vast majority of people in the United States will soon be unable to afford health care if nothing is done to contain costs. This is the second most predictable crisis in history, after the housing bubble, and almost no one is talking about it.

My favorite solution is to take advantage of trade -- every other health care system in the world is more efficient than ours. Unfortunately, the political debate in the United States is dominated by Neanderthal protectionists, at least when it comes to trade measures that could lower the income of doctors and other powerful special interest groups.



What's This "We " Jazz, White Man? Robert Samuelson Edition Print
Monday, 19 March 2012 04:59

Robert Samuelson uses his column today to complain that:

"Four years after the onset of the financial crisis — in March 2008 Bear Stearns was rescued from failure — we still lack a clear understanding of the underlying causes."

Wow, it sure doesn't seem very hard to me. The Reagan-Volcker policies of the early 80s broke the link between productivity growth and wage growth for ordinary workers. This meant that demand growth did not necessarily keep pace with output potential as had been true earlier in the post-war period, since higher wages would quickly translate into higher consumption. 

That created an environment which opened a door to speculative bubbles. In the 90s it was the stock bubble which drove growth, primarily by pushing saving rates to then record lows. In the last decade it was the housing bubble which drove growth, both by creating a building boom and also by pushing saving rates even lower as bubble-generated home equity led to a consumption boom.

None of this story is new. I was writing about how the stock bubble was driving the economy in the 90s and how the housing bubble was driving the economy as early as 2002. And, I gave the historical picture in Plunder and Blunder: The Rise and Fall of the Bubble Economy.

But, folks like Robert Samuelson would rather pretend that the whole story is a great mystery rather than contemplate the possibility that the economic instability of the last decade had its roots in a pattern of growth that was built on redistributing income from ordinary workers to the most highly paid workers and corporate profits.

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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.