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NPR Does Market Analysis Print
Tuesday, 22 November 2011 05:43

In its top of the half hour news segment on morning edition (sorry, no link), Morning Edition told listeners that the stock market plunged on Monday because of the fallout from the failure of the supercommittee. Of course the stock market does not tell us why it moves the way it does. This was NPR's assessment of the reason for the market's movement.

NPR's assessment suffers from two problems. First, the failure of the supercommittee was widely expected by the end of last week. This means that most of the impact should have been seen last week, not on Monday.

The other problem is that a failure to deal with the deficit, insofar as the deficit is viewed as a major problem, should most directly affect the bond market. In fact bonds went the way: prices rose and yields fell.

If there was concern that deficits would now become dangerously large as a result of the supercommittee's failure, the bond market did the exact opposite of what would have been predicted. This suggests the need to find an alternative explanation for the drop in the stock market, like the growing probability that the euro will meltdown and produce another Lehman type freeze up. That would be very bad news for the economy and future corporate profits.

 
Joe Nocera Tells Why We Should Not Use Patent Monopolies to Finance Drug Research Print
Tuesday, 22 November 2011 05:30

Actually he never mentioned patent support for drug research. However, his column did a good job of showing the waste and corruption that result from the monopoly rents created by patent monopolies.

In this case, the drug Avastin was determined to be ineffective as a treatment for breast cancer by the food and drug administration. Nonetheless, many insurers are likely to continue to pay for the $90,000 a year treatment. This is in part driven by the views of researchers who are on payrolls of the Genentech, the drug's manufacturer.

This is exactly the sort of corruption that economic theory predicts when government monopolies allow companies to sell their products at prices that far exceed the free market level. It is likely that if Avastin were sold in a free market, the cost of a year's treatment would only be a few hundred dollars a year. This would remove the incentive to mislead the public about its effectiveness.

This sort of outcome should lead to a debate over the best way to finance prescription drug research. Unfortunately most people in policy positions are hard-core protectionists, so this discussion almost occurs.

 
Column from Another Planet: David Brooks Talks About the Sun and the Moon Print
Tuesday, 22 November 2011 05:16

David Brooks devoted a column today to the weak political support for either political party. He never once mentioned the recession and the prolonged period of high unemployment. (He literally does talk about the sun and the moon.) While this may not explain the failure of one party to achieve dominance in the 90s or the first part of the 00s, the theme of his piece, it is undoubtedly the central feature of the political scene at present.

The closest that Brooks comes to mentioning unemployment is when he comments that:

"some liberals, who represent, at most, 30 percent of the country, are disappointed because President Obama hasn’t ushered in a Huffington Post paradise."

There are certainly many liberals (and non-liberals) who are unhappy that President Obama has not been able to bring the economy closer to full employment. That may be Brooks' perception of "Huffington Post paradise."

 
Robert Samuelson Does the Old Social Security and Medicare Trick Print
Monday, 21 November 2011 06:14

Medicare costs are projected to soar over the next two decades, more than doubling as a share of GDP. This means that anything you put together with Medicare in a sentence will also have explosive growth, such as "Medicare and national park maintenance are projected to more than double as a share of GDP over the next two decades."

For this reason, honest people don't lump together other programs, like Social Security, with Medicare. Social Security's costs are projected to rise at a much more modest pace and, according to the Congressional Budget Office's projections, these added expenses will be fully covered by the Social Security trust fund through the year 2038. But, we don't expect honest discussion from Robert Samuelson.

The problem with Medicare is of course the broken health care system. If the United States paid the same amount per person as people in other wealthy countries then we would be facing long-term budget surpluses, not deficits. While reforming the U.S. health care system is difficult, there are enormous potential gains from trade. However, the Washington elite are such ardent protectionists when it comes to the incomes of their friends in the health care industry, they will not allow the issue of promoting trade in health care to even be considered.

It is also worth noting that the tax plan put forward by Senator Patrick Toomey, which Samuelson touts in this piece, would imply huge tax cuts for the highest income households compared to a situation where the Bush tax cuts are allowed to expire, which is current law.

 
Republicans Plan to Lie on Tax Policy in the 2012 Election Print
Monday, 21 November 2011 06:02

That should have been the headline of a Washington Post piece on the future of the Bush tax cuts. The piece quotes Grover Norquist as saying:

"And GOP strategists say the White House’s position makes the president vulnerable to charges that he would impose what many Republicans are already calling the 'biggest tax increase in American history' if reelected. 'We’ll run against their tax increase,' said GOP anti-tax activist Grover Norquist, 'and we’ll crush them.'"

President Obama is not proposing the biggest tax increase in history. He is proposing ending the Bush tax cuts for the richest 2 percent of the population. This is not even close to the biggest tax increase in history.

If the Republicans make the charge that it is the biggest tax increase in history then they are not telling the truth. They apparently believe that the media will allow them to get away with making a lie the centerpiece of their campaign.

 
Representative Jeb Hensarling Doesn't Know About the Recession Print
Monday, 21 November 2011 05:47

This should have been the headline of a front page Washington Post piece on the likely failure of the supercommittee. At one point the piece quotes Hensarling:

“It wasn’t so much of a failure as it was a failure to seize an opportunity. . . . This nation better seize another one or we will be in big economic trouble.”

This comment seems to imply that Mr. Hensarling does not realize that we are already in big economic trouble. The unemployment rate has been above 9 percent for most of the last two and a half years and there are no projections showing it coming down any time soon. Tens of million of baby boomers have seen most of their life savings disappear with the collapse of the housing bubble and are reaching retirement with little other than their Social Security and Medicare to support them. Millions of people are underwater in their mortgage and are likely to lose their homes in the next few years.

This is big economic trouble. Apparently, Mr. Hensarling has not noticed these economic developments. This is newsworthy.

This piece is written largely like an editorial. It misrepresents recent events to imply that there was a great urgency for the supercommittee to reach an agreement. For example, it asserts:

"The trigger of automatic cuts should assuage jittery financial markets, which have been on a roller-coaster ride since the summer’s debt standoff in the United States and the struggle to tame even greater fiscal quagmires in Europe. But lawmakers fear that the sentiment of a dysfunctional federal government could solidify and prompt new fear in the global markets."

Actually, there is little evidence that financial markets were jittery because of concerns about the deficit. The asset most immediately affected by concerns about U.S. government debt is U.S. government bonds (i.e. U.S. government debt). Bond prices have been very high through the last five months, with interest rates hovering near post-depression lows. Stocks have taken a hit, but this is most likely from concerns about a double dip recession in the United States caused by weak demand and the risk of a meltdown in the euro zone. In other words, the markets have acted in exactly the opposite way as would be predicted by deficit hawks.

 
The Supercommittee Was Considering "Cuts" to Social Security and Medicare, not "Changes" Print
Monday, 21 November 2011 05:22

A NYT piece on the failure of the supercommittee repeatedly referred to plans to "change" Social Security and Medicare. The supercommittee was not considering random changes to these programs, they were proposing cuts. The purpose was to save money, not make the programs better.

These programs are incredibly popular across the political spectrum as even large majorities of conservatives and Republicans oppose cuts to them. It is therefore understandable that politicians would use euphemisms to conceal their intentions. However, there is no reason for a newspaper, which has the responsibility of informing readers, to adopt the same euphemism.

 
Laying Off Government Workers in the Middle of a Recession Costs Jobs Print
Monday, 21 November 2011 05:11

A NYT piece on the likely failure of the supercommittee included a quote from Senator John Kyl:

"You can’t grow if you raise taxes in the middle of a recession.”

It would have been worth pointing out that according to the Congressional Budget Office and most standard economic models, it also hurts growth to have budget cuts in the middle of a recession. In fact, these models generally show that a dollar of spending cuts is considerably more harmful to growth than a dollar of tax increases. If Senator Kyl is primarily concerned about ensuring growth until we are out of the recession, then he would be resisting spending cuts right now rather than pushing them.

This piece includes a quote from Erskine Bowles. It would have been helpful to remind readers that Mr. Bowles is a director of Morgan Stanley, the Wall Street investment bank.

 
When it Comes to Doctors and the Health Care Industry, the NYT is Staunchly Protectionist Print
Monday, 21 November 2011 05:02

The NYT is generally a strong supporter of more open trade. However, for some reason its editorial on constraining costs in Medicare never mentioned an increased role for trade. This is peculiar since the fact that the health care system in the United States is so much more costly than health care systems elsewhere in the world (we pay more than twice as much per person for our care as people in other wealthy countries) means that there are large opportunities of gains from trade.

People who prefer freer trade to protectionism should be looking in this direction. The potential gains are several orders of magnitude larger than the potential gains from various trade deals over the last two decades.

 
Does the NYT Find It Stimulating to Hear Politicians Talk About "Job-Killing" Regulations and Taxes? Print
Sunday, 20 November 2011 06:52

That's what readers of the Sunday Magazine piece on Elizabeth Warren might conclude. At one point it tells readers:

"When pressed on what kind of formidable legislation she would actually pursue in the Senate, Warren’s organization served up a snoozy list of the priorities that Democrats have been talking about for years: she will push for spending on infrastructure, education and renewable energy. She will work to strengthen labor unions and advocate for the reregulation of the big banks while easing regulations that make it difficult for small businesses and community banks to compete with giants." (emphasis added)

There are few politicians that come out with ideas that are not already common in the public debate. Certainly none of the presidential contenders, with the exception of Ron Paul and Herman Cain, have presented ideas that have not been pushed by Republicans for decades. Nonetheless, the NYT has not suggested that these ideas are sleep inducing.

[Thanks to Greg Wilson.]

 
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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.

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