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Does the Post Get Paid to Push Trade Agreements? Print
Friday, 14 October 2011 07:47

One would hope so, since its reporting on the topic is so embarrassing. The paper told readers:

"There have been some compromises on jobs measures this year, as both parties have sought small wins. On Wednesday, Congress approved new trade agreements with Colombia, Panama and South Korea, lowering barriers to American exports."

While politicians from both parties, including President Obama, have called these trade pacts job bills, it would be very difficult to find any economist anywhere who is not obviously on someone payroll who would claim that these deals would lead to any notable number of jobs ever, and certainly not in the next few years. Most analyses show that these deals will have very little impact on jobs and it is entirely possible that they will end up as net job losers in the short-term as has been the case with past trade deals.

The piece also described the repeal of a 3 percent withholding tax on payments to businesses that contract with state and local governments as a jobs measure. This is nonsense. The withholding an effort to increase tax compliance by small businesses who often cheat on their taxes, just like paycheck withholding is an effort to keep workers from cheating. Ending the withholding is a sop to these businesses for political reasons, no one believes that it will create any jobs.

[In response to popular demand, here is the International Trade Commission (ITC) report on the South Korea deal, by far the biggest of the three. It projects that when fully implemented (@ 10 years), it would increase GDP by around $10 billion or approximately 0.05 percent. The ITC projections for trade agreements have generally proven to be overly optimistic.)

 
Martin Feldstein Strikes Out Again: Big Time Print
Thursday, 13 October 2011 07:41

Harvard economics professor Martin Feldstein, who made himself famous by predicting in 1993 that Clinton tax increases would not raise any revenue, strikes out big time in his proposal for the housing market in today's NYT. He tells readers:

1) House prices are continuing to fall because of the wave of foreclosures;

2) That consumers are not spending because they are losing housing wealth;

3) That a major reason that unemployment is high is that underwater homeowners can't move to place with jobs;

In response, he proposes a plan that could bail out banks from underwater mortgages while leaving millions of homeowners as near indentured servants.

Let's deal with each of these points in turn.

First, house prices are falling for the same reason that the price of Pets.com stock plummeted in 2000. The housing bubble has not fully deflated. If Feldstein bothered to check the data he would know that real house prices are still about 8-10 percent above their long-term trend. Consistent with over-valued prices we see that there is still a near record vacancy rate in housing (topped only by the levels hit in 2010). In other words, the main reason for house prices to decline is simply excess supply. There are certainly areas where foreclosures have blighted communities and thereby caused prices to fall further, but this is not the main story of house price decline.

Second, consumers actually are still spending at an above normal rate. The savings rate out of disposable income is still just 5 percent. This is above the near zero rate at the peak of the housing bubble, but it is well below the 8 percent average of the pre-bubble years. It is strange that Mr. Feldstein appears to be unaware of the lower than normal saving rate (and higher than normal consumption) since he has done a great deal of work on precisely this topic and his original claim to fame was a paper showing that Social Security lower household savings.

We should actually anticipate that savings will increase further when the bubble has fully deflated and, according to Feldstein's pas writings, this would be a good thing. It is striking that he now seems to view saving as bad.

Feldstein's third claim is simply not supporting by any evidence. There have been several studies that examined the extent to which being underwater has prevented job losers from moving to new jobs (including one by John Schmitt and Kris Warner). They all have found little or no effect. People are prepared to leave their homes or two-earner couples separate so that one earner can move to a job. This is simply not a major cause of unemployment.

So Feldstein has no real basis for his claims about the disastrous impact that the housing market is having on the economy. However, his policy solution is a disaster. He proposes to have the government pick up half of the loss on seriously underwater mortgages. In exchange, if the homeowner consents, the lender can track them to the ends of the earth for their remaining debt.

There are two really really big problems with the Feldstein plan. First, it is completely voluntary for lenders. This means that they will not take up the deal with people who they think are likely candidates to repay their mortgage. There are many underwater homeowners who are struggling to pay their bills. Feldstein's plan offers them nothing. The bank knows that they will pay, so they will not put their mortgage in the program.

However, there will be more questionable loans that will go into the program. Some of these people may be able to make their payments after the principle write-down. They will then get to live in their home until they move and in all probability never accumulate a dime in equity (but the bank got half of its loss picked up by the government).

Others will take the deal and then find themselves still unable to pay their mortgage -- remember we still have 9.1 percent unemployment and most people in Washington don't seem to give a damn. Under the Feldstein plan the debt will now become a recourse loan, which means that the bank can hound foreclosed homeowners until the day they die for any portion of the mortgage that is not repaid by the sale of the house.

So there you have it, a solution for a non-problem that gives banks tens of billions of dollars for bad mortgages and makes foreclosed homeowners debtors for life. What could be better than that?

 
Post Pushes Government Versus Market Fairy Tale, Again Print
Friday, 14 October 2011 06:55

The Washington Post likes to tell readers that politics is not really about interest groups fighting to use the government to advance their ends, but rather reflects a difference in philosophy. It did so again today, telling readers that we can't get a jobs plan because:

"each side’s philosophy holds that the other’s is essentially bunk."

The piece continues:

"For the GOP, the big idea is that government is the main problem.

Republicans have proposed to stop new environmental and financial regulations, and lower corporate taxes. Then, the logic goes, a liberated private sector will pull itself off the mat.

For the Democrats, the idea is that government can be the main solution.

Democrats have also called for increases in government spending on roads and bridges, teachers and firefighters. This money, the logic goes, will spark the private sector to begin hiring workers again."

This is a cute exercise in pushing stereotypes, but now let's step back to reality for a second. The vast majority of the money in President Obama's job plan is in the form of tax cuts, mostly cuts in the payroll tax for workers and employers. How exactly does this fit with "government can be the main solution?"

As far as the Republican side, how many Republicans called for ending federal deposit insurance and other supports for the banking system? Republicans have no problem with all sorts of government regulations (e.g. patent and copyright protection) that impose enormous costs on the economy, but disproportionately benefit the wealthy. Their objection is not to government, their objection is to government doing anything to help the poor and middle class. 

The Post should stick to reporting the news and stop trying to pass off its fairy tales about politics in the United States.

 
WOW! Fracking Added 0.1 Percent to Employment in PA Print
Thursday, 13 October 2011 05:42
That's what NPR told listeners this morning. Although they didn't bother to put the 6,400 new jobs in any context, just reporting that fracking was leading to an employment boom. This piece is a joke, it is the sort of thing that you would expect the industry to run as an ad.
 
NYT Ignores Division Between Bankers and Democracy on Fed Print
Thursday, 13 October 2011 04:59

The NYT ran a piece on the divisions on the Fed over the future course of monetary policy with some members strongly supported more aggressive measures to boost the economy while others expressed concern about inflation. The piece noted that this division was in evidence in the last two votes by the Fed's Open Market Committee, however it failed to point out the fact that it was closely tied to who appointed the members.

All five of the Federal Reserve Board governors, who are appointed by the president and approved by Congress, voted for stronger action. (Three of these governors are Obama appointees, one is a Bush appointee, and Chairman Bernanke was appointed by both.) The five voting regional bank presidents, who are appointed by the banks in their region, split 3 to 2 against stronger action.

The NYT should have called readers attention to this gap in voting patterns. Banks in general tend to be very concerned about inflation, since it erodes their profits, whereas unemployment does not directly affect banks.

The piece also told readers that deflation can be a problem because it, "can cause buyers to delay purchases, derailing the economy." Actually, the likely rates of deflation that the economy might experience would have little effect in along these lines. For example, if prices were falling by 0.5 percent a year, this would mean that a person buying a $20,000 car could save $100 by waiting a year. This is unlikely to have much impact on their behavior.

The real problem is that inflation is lower than is desired. The drop from an inflation rate of 0.5 percent to a deflation rate of 0.5 percent creates no greater problem that the drop in the inflation rate from 1.5 percent to 0.5 percent. There is nothing magical about falling prices.

 
Covering Up Protectionism Print
Thursday, 13 October 2011 04:21

The NYT went overboard in covering up the protectionism in the trade pacts approved by Congress yesterday. All three deals substantially increase protectionism in the form of patent and copyright protection. The former will likely increase the price of drugs in the countries partnering with the United States. The distortions created by these protections will reduce real wages and lower output.

For this reason, it is wrong to call these pacts "free trade" agreements, as the NYT did four times in a short piece. It is also inaccurate to say as the NYT does:

"Economists generally predict that free trade agreements, which eliminate tariffs and other policies aimed at protecting domestic manufacturers, benefit all participating nations by creating a larger common market, increasing sales and reducing prices."

This does not follow when protectionist barriers raise the price of a substantial group of products.

[The Post committed the same sin.]

 
Can't the Post Get Democratic Officials to Speak on the Record? Print
Wednesday, 12 October 2011 05:23
A Post article on the failure of the Senate to approve President Obama's job bill included quotes or cites from "a senior White House official" and "a senior Senate Democratic aide." It is difficult to see any reason that the statements in the piece should have been printed without attribution. If the sources were not willing to go on record, then their comments or insights should not have been presented to readers.
 
Imports Cost Jobs: Tell Marketplace Radio Print
Wednesday, 12 October 2011 04:54

Marketplace radio did a short segment this morning in which it cited estimates of job gains associated with increased exports from the Korean trade pact. Jobs are generated by net exports, which is equal to exports minus imports. While the trade deal will surely increase exports to Korea, it will also increase imports from Korea. If past agreements are any precedent, the increase in imports will exceed the increase in exports meaning that in the short-term the agreement would be a job loser. (In the longer term trade is about increasing efficiency, not jobs.)

Just reporting the jobs created by exports is incredibly irresponsible. It is like reporting one side of a football score, it tells listeners nothing. Marketplace's reporters and editors should know this.

 
The NYT Should Have Corrected Perry: The Government Did Cut Spending Under Clinton Print
Wednesday, 12 October 2011 04:48
During the Republican debate last night, Texas Governor Rick Perry said that he opposed budget compromises that involved both tax increases and spending cuts because the people, "never see a cut in spending." Actually, President Clinton had large cuts in both domestic and military spending. If the public did not see it then it is the result of poor reporting and the efforts of politicians to conceal these cuts. This should have been noted in this article.
 
Newt Gingrich Wants to Force Taxpayers to Pay for Useless Medical Procedures Print
Wednesday, 12 October 2011 04:31

The NYT had a short piece commenting on and correcting some of the statements made by the Republican presidential nominees in last night's debate. One of the items was a complaint by Newt Gingrich that a government task force had recommended that Medicare and private insurers stop paying for routine prostate cancer tests, where there is no reason to believe that a patient has cancer. The piece notes that, contrary to Gingrich's claims, the task force was comprised of medical professionals and made its recommendation based on evidence that testing often led to pointless procedures and did not reduce the risk of cancer.

It would have been worth adding that nothing that this task force recommended would have done anything to prevent people from paying for tests out of their own pockets, if they felt the tests were worthwhile. This is also relevant in the context of Gingrich's endorsement of Sarah Palin's charge that Obamacare would set up death panels, since there are some medical procedures that are considered of little medical value that Medicare may not pay for.

In no circumstance would anything being proposed or considered by the Obama administration prevent any patient from getting any care that they were prepared to pay for out of their own pocket. This means that if Gingrich and Palin are troubled by the administration's actions, then it is because they want taxpayers to be forced to pay for medical care that experts consider wasteful.

 
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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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