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Leonhardt Nails It on the Fed Print
Sunday, 28 August 2011 07:58
David Leonhardt has a great piece outlining the battle over Fed action and the way it is affected by outside pressures. It is well worth reading.
 
NYT Misleads on Federal Spending with a Seriously Bad Headline Print
Saturday, 27 August 2011 17:10
The headline of an NYT story told readers: "out of debt ceiling fight, some see a bit of stability on federal spending." While the headline might lead readers to believe something like the deal restrained out of control spending, the article says nothing like this. The article is referring to the budget process which has become chaotic since the Republicans took control of the House. It does not focus on the levels of spending, which were projected to fall relative to the size of the economy even before the debt ceiling deal.
 
Obama Says He Just Found Out How Bad the Economy Was in 2008, Where Is the Ridicule? Print
Saturday, 27 August 2011 08:10

The media love to jump on politicians when they say something stupid or inaccurate about their personal lives.They will fill pages and pages of print, and take up hours on radio and TV, talking about the comment. They will bring on experts (i.e. political reporters and gossip columnists) to tell the public what the gaffe means and why it makes that person inappropriate for elected office.

However they somehow don't get the same urge when a political figure makes an incredibly foolish remark about a policy matter. This is striking because most people are perfectly competent to assess the appropriateness of a statement about a personal matter based on their own lives' experience. In other words, they really don't need the "experts" to tell them how important or unimportant a particular remark is. On the other hand, most people do not have expertise in the various areas of public policy, so they could benefit from having an expert tell them when a political figure makes an especially off the wall comment.

In that spirit, the Washington Post absolutely should have included a heavy dose of expert ridicule when it reported that President Obama said:

“I have to admit, I didn’t know how steep the climb was going to be. Because we didn’t realize — we just found out a week ago that the economy that last few months in 2008 was even worse than we had realized.”

It is true that the Commerce Department just revised down the GDP data to show that the decline at the start of the recession was even steeper than had previously been reported. However, by far the most meaningful measure of the steepness of the climb needed for recovery is the employment to population ratio (EPOP):the percentage of the working age population with jobs. This is reported monthly and is not subject to substantial revision.

President Obama's team always knew exactly how far the EPOP had fallen since the start of the downturn and therefore knows how many people must be put to work to get the economy back to full employment. The lower than previously reported GDP is an interesting piece of information, but tells us almost nothing new about how much ground must be made up. 

The Post should have included the comments of economists ridiculing the idea that President Obama has just now discovered how bad the downturn was. It might even be worth a separate article or two. If the statement is actually true (i.e. President Obama just realized how bad the downturn was) then it is deserving of far more attention than his comment about working class whites being bitter and clinging to gun and religion before the Pennsylvania primary.

 
NPR Justifies Its $211 Trillion Debt Scare Print
Friday, 26 August 2011 15:11

It is the media's responsibility to inform the public about the key issues affecting their lives. One of the key issues is the economy. At the moment more than 25 million people are either unemployed, involuntary working part-time, or have given up looking for work altogether. The reason is that the folks running the economy somehow could not see the $8 trillion housing bubble that eventually collapsed and took the economy down with it.

One way to get people back to work is government stimulus. This could be spending on various items, it could be tax cuts, or it can (and usually is) some mix. However, stimulus does cause deficits. This brings us to an NPR story that told us the real debt was not the widely advertised $14.3 trillion debt subject to the debt ceiling, but rather $211 trillion.

The implication is that we shouldn't be worried about putting people back to work, we should be worried about cutting the deficit. And by the way, that may also mean taking an ax to Social Security and Medicare.

I blogged on this story when it ran a couple of weeks ago and called it cesspool journalism. The reason is that it's only purpose could be to frighten people about the deficit. It could not possibly be to inform since it is almost inconceivable that anyone hearing or reading this story would have any clue of how this $211 trillion debt figure was derived.

The methodology used for the calculation is obscure and used by almost no one except Lawrence Kotlikoff, the economist who developed it, and a few of his former students. For example, the debt figure is based on the assumption that no one not currently in the work force ever pays taxes. It also conceals a projected explosion in private sector health care costs whereby it will cost an average of $40,000 a year in 2030 (in 2011 dollars) to provide care to an 85-year old. By 2080 this number will exceed $100,000 a year (also in 2011 dollars). These are among the reasons that almost no one other than Mr. Kotlikoff uses this methodology.

NPR ombudsman took up my blognote and turned to Weekend All Things Considered Supervising Senior Editor Rick Holter for a response. In essence, Mr. Holter's response was that NPR had aired the views of people less hawkish on the deficit, like Paul Krugman and Peter Diamond (I have also been NPR talking about the deficit), so it was reasonable to include an extreme deficit hawk like Kotlikoff.

The question of devoting a segment to Kotlikoff is not simply one of balance, although I would argue that NPR has been seriously unbalanced in its coverage of the deficit in general and especially in the last few months. The issue with Kotlokoff is that the piece could not have provided information to NPR's audience. There was almost no way that anyone who is not a policy analyst working on budget issues would have the ability to assess Kotlikoff's $211 trillion number. This was about scaring people, not informing them.

There's nothing wrong with having Kotlikoff present his views on NPR. But the station has the responsibility to ensure that it is done in a context where it is providing information, not just spreading scare stories. This piece only did the latter.

 
The NYT Completely Misinforms its Readers on Fed Policy Print
Friday, 26 August 2011 09:58

The NYT made a remarkable assertion in its discussion of Federal Reserve Board Chair Ben Bernanke's speech at Jackson Hole today. It told readers:

"The most dramatic option available to the central bank would be an announcement that it intends to increase the total size of the portfolio. This is what markets refer to as “QE3,” meaning that it would represent a third round of the strategy known as quantitative easing."

Let's try about 2000 "NO"s for that one. The Fed could target a long-term interest rate. For example, it could announce that it was going to push the interest rate on 5-year Treasury bonds to 1.0 percent. It could target a higher inflation rate, for example 3-4 percent as has been advocated by people like Ben Bernanke before he was Fed chair. And it could buy assets other than government bonds, like the bonds of private corporations.

All of these steps would have a much more dramatic impact than "an announcement that it intends to increase the total size of the portfolio." It is incredible that the NYT reporters/editors on the Fed beat are apparently unfamilair with such proposals since they have been mentioned frequently by economists involved in monetary policy debates for years.

 

 
What Does It Mean to Say the Economy Will Not Recover Until the Housing Market Recovers? Print
Friday, 26 August 2011 05:51

Morgan Stanley director Laura Tyson included this line in a piece that argued for the need for government stimulus. It is common for people to make this assertion, but it is not clear what they mean by "recovers."

The economy was driven by a housing bubble in the last upturn. It lead to both a building boom and a consumption boom. Is the implication that we need another housing bubble to drive the economy?

There is a simple issue of accounting identities. Currently the country has a large trade deficit. To make up the shortfall in demand created by this deficit, we either need negative private savings or negative public savings (e.g. budget deficits) or some combination. It seems that Tyson is arguing for negative private savings as a long-run solution, as opposed to pushing the dollar down to eliminate the trade deficit.

 
Maybe Republicans Talk to Business People Because They Give Campaign Contributions Print
Friday, 26 August 2011 05:26

The Washington Post featured an extraordinary exercise in mind reading on page 3 today. The article, which carries the subhead, "candidates gravitate to potential job creators rather than unemployed," told readers:

"the contenders in the GOP field appear to be spending most of their time with those they think could be the solution to the country’s economic hardship (business owners) rather than those who are most directly experiencing the hardship (people out of work)."

Of course the Post has no idea what the Republican presidential candidates think. A serious newspaper would restrict itself to telling readers what the candidates do and say.

 
Corporations Do Not Exist to Create Jobs Print
Friday, 26 August 2011 05:08

In an article discussing three trade agreements being debated by Congress, the NYT told readers:

"under the agreements, American service providers would be able to compete in the three countries, ostensibly adding new jobs to the American economy. Because of this, they are widely supported by the U.S. Chamber of Commerce and other business trade groups."

This is wrong, wrong, and wrong. Corporations do not exist to create jobs, nor do they claim this as a goal. Invariably, corporate CEOs will say that their responsibility is to produce returns for shareholders, as they announce large layoffs. If the Chamber of Commerce is supporting these deals it is because it believes that they will increase profits, end of story.

The piece also bizarrely tells readers that the deals are projected to expand exports by $12 billion without mentioning how much it is expected to increase imports. This is like reporting a baseball score by telling us how many runs the Yankees got and not mentioning how many runs their opponents got.

It is net exports, the difference between exports and imports, that creates jobs. If the GM relocates an assembly plant from Texas to Mexico, the export of car parts from the United States is not adding jobs. Any reporter should know this and never print an export projection without including the corresponding import projection.

The piece also wrongly refers to the deals as "free-trade agreements." This is just a term that proponents use to make them sound more appealing. In fact, the deals will increase many forms of protectionism, most notably by imposing stronger patent and copyright protections on the three countries in these deals. A neutral report would just use refer to the deals as "trade agreements."

 
NYT Is Confused About the Payroll Tax Cut Print
Friday, 26 August 2011 04:41
The NYT told readers that the temporary cut in the payroll tax, "resulted in $67.2 billion of lost revenue for Social Security in 2011 and a total cost of $111.7 billion spread over 10 years." Actually, the cut did not cost the program anything since the lost tax revenue was replaced by general revenue.
 
We Run the Risk of Political Interference Undermining Good Fed Policy Print
Friday, 26 August 2011 04:21

Morning Edition had a piece on the Federal Reserve Board's annual meeting at Jackson Hole. The segment included a comment from an analyst (link not available yet) saying that we are seeing the risk of political interference undermining good Fed policy.

This would have been a great comedic comment, if it were not said in complete earnestness. This is sort of like worrying that the performance of the Federal Emergency Management Agency would deteriorate after the departure of Michale Brown, except the damage caused by Brown's incompetence was trivial compared to the enormous suffering that has resulted from the Fed's incompetence.

The Fed (i.e. Alan Greenspan and his then sidekick Ben Bernanke) sat back and let the housing bubble grow to ever more dangerous levels. It possessed all the tools necessary to rein it in but chose to do nothing. This is like a school bus driver drunkenly swerving into oncoming traffic and killing all aboard. Incredibly, in Federal Reserve Board land, the driver comes to work the next day and no one says anything.

Yeah, we should worry that it gets worse than this! 

 
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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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