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George Will Never Heard of the Housing Bubble (or Labor Economics) Print
Sunday, 22 May 2011 07:29

Fortunately, his job as a columnist for the Post doesn't require that he have any knowledge of such things. His article today touts California's fiscal hardships. It includes no mention whatsoever of the housing bubble.

California was at the epicenter of the housing bubble with prices in some areas more than tripling in the decade from 1996 to 2006. This led to a massive construction boom as well as a consumption boom based on bubble-generated home equity. 

Now that prices have returned to pre-bubble levels in many of the former bubble markets, construction has fallen through the floor and consumption has plunged as underwater homeowners struggle to keep current on their mortgages. This collapse is the main cause of the state's economic downturn as well as its fiscal crisis.

While Mr. Will looks forward to the prospect of the state's public employees being forced to take large pay cuts, in most sectors public sector wages are not substantially higher than for their private sector counterparts with similar education and experience. Basic economics dictates that if wages are lowered by much below their private sector level then the state will be unable to attract qualified people to work as teachers, nurses and other positions in the public sector.

 
Christina Romer Gets the Clinton Stock Bubble Wrong Print
Saturday, 21 May 2011 22:57

In an otherwise excellent column calling attention to the need for a lower dollar, Christina Romer, formerly President Obama's chief economist, implies that the run-up in the dollar in the late 90s was due to "brilliant American innovation." Actually the rise in the dollar was fueled initially by the need for the East Asian countries to accumulate dollars as a result of the conditions imposed by the IMF bailout from the region's financial crisis.

The inflow of money from abroad helped to fuel the stock bubble but it had little to do with productive investment. While the investment share of GDP was somewhat higher than in the late 80s, it was far below the investment share of the 70s.

Furthermore, the share of the investment components taken together, investment plus net exports, was only slightly higher in the 90s than it had been in the 80s and much lower than in the 70s. (The investment share subtracts out motor vehicle leasing [underlying detail Table 2, line 120]. There was a surge in car leasing in the 90s as a substitute for car purchases. A leased car would count as investment in GDP accounts, while a purchased car would be included in consumption.)

 

investment_shares_19143_image001

Source: Bureau of Economic Analysis.

 
Copyright My Ass! Print
Saturday, 21 May 2011 08:05

Yes, it looks like it is coming to that. The NYT has an article about efforts by tattoo artists to claim copyrights in their tattoos.

It would have been useful to include the views of an economist on this issue. It would be difficult to imagine a more wasteful intervention into the market than giving tattoo artists a monopoly on the use of specific images. The enforcement problem is beyond absurd.

 
A Union Maid Reported Dominique Strauss-Kahn's Sexual Assault Print
Saturday, 21 May 2011 07:39

This point should have been mentioned in a NYT article on the risk of sexual assault/harassment that housekeepers face in hotels. As the article notes, many housekeepers are reluctant to bring such attacks to the attention of their supervisors and/or law enforcement both out of embarrassment, but also out of fear of losing their jobs.

In this particular case, the housekeeper belonged to a union that has provisions in its contract that explicitly require the management to take cases of sexual assault or harassment seriously. This meant the housekeeper knew that she could make a complaint to management and not worry about being ridiculed or putting her job at risk. This fact would have been worth mentioning in the article. 

 
Do All Democrats Think That President Obama's Budget Cuts Are Too "Timid?" That's Right, It's Another Front Page Washington Post Editorial Print
Saturday, 21 May 2011 07:27
The Washington Post had a front page piece reporting on how Senate Democrats find themselves taking a back seat in current political debate in Washington. At one point the article refers to Senate Minority Leader Mitch McConnell's plan to bring President Obama's budget to a vote, adding:

"which both parties lambasted as being far too timid in dealing with the nation’s swelling deficit."

Of course this assertion is just an invention of the folks at Fox on 15th Street. While there may be some business-associated Democrats who have lambasted President Obama's budget for being too "timid," the vast majority of congressional Democrats have made no such criticism. Needless to say, this statement does reflect the Washington Post's editorial position on the budget.

 
Politico Has Not Heard About the Collapse of the Housing Bubble and Economic Crisis Print
Friday, 20 May 2011 11:01

That is the conclusion that readers of a Politico article headlined, "budget surplus to deficit: how we got here," must conclude. This article attributes the increase in the deficit in the Obama years to increased spending coupled with tax cuts, only mentioning in passing at the end of the article that the single biggest factor in the rise of the deficit was the economic collapse. It fails to point out that virtually all of the additional spending and tax cuts by President Obama was carried through for the explicit purpose of counteracting the loss of private sector demand due to the collapse of the bubble.

It is absolutely inexcusable for a serious news organization to run a piece like this. The collapse of the housing bubble was by far the biggest economic disaster since the Great Depression. Complaining about the size of the deficit under President Obama, while only mentioning in passing the reason for the deficit, is like complaining about a city's use of water without mentioning that it had been trying to extinguish a massive fire.

If reporters and editors were held accountable for the quality of their work in the same way as dishwashers and schoolteachers, people would be fired for this piece.

 
Failed Medical Innovation: The Secret to the Lower Than Expected Cost of the Medicare Drug Plan Print
Friday, 20 May 2011 05:46

Michael Leavitt, the Secretary for Health and Human Services under President Bush, touted the Medicare Part D model in an oped in the Washington Post. Leavitt argued that this model, which provided a prescription drug benefit through private insurers, has been effective in providing a wide range of choices to beneficiaries and holding down costs. He notes that the cost of the program has been far lower than the Congressional Budget Office had projected.

While Leavitt is correct in pointing out that the drug benefit has cost much less than had been projected, it is important to note that drug prices in general have risen much less rapidly than was projected when the benefit was introduced in 2006. The obvious explanation for the lower than expected increase in drug prices is a much slower rate of innovation.

In the years since 2005, the Food and Drug Administration has been granting approvals for new drugs that it assigns priority reviews, meaning that they provide a qualitative improvement over existing drugs, at roughly half of the rate that it did in the 1990s. The number of priority approvals averaged just 10 between 2005-2009 compared to 19.9 in the 1990s.

 

new_drug_approvals_20533_image001

 

Source: FDA and Knowledge Ecology International.

 

These new drugs, which supposedly provide much greater medical benefits than existing drugs, are the major factor driving cost increases. Therefore, it is not surprising that a slowdown innovation would be associated with a slower rate of increase in the cost of drugs, including the cost of drugs provided through Medicare Part D.

According to the Center for Medicare and Medicaid Services, we are spending almost 4 times as much on prescription drugs today (adjusted for inflation) as we did in 1990. Given this increase in spending, it would be reasonable to expect the rate of drug development to increase.

 
Is Robert Rubin Really Still an Authority on the Economy? Print
Friday, 20 May 2011 05:12

Ezra Klein apparently thinks so. He turned to Mr. Rubin to get his assessment of the risks of letting the country default on its debt.

As Treasury Secretary, Rubin pushed the high dollar policy that created the enormous trade imbalance that still afflicts the U.S. economy. He also stood by as the stock bubble rose to ever more dangerous levels. He insisted on removing restrictions on financial industry risk-taking, over-riding efforts by other regulators.

After leaving the Clinton administration he became a top official at Citigroup. Citigroup packaged hundreds of billions of dollars of bad mortgages into mortgage backed securities, helping to inflate the housing bubble. The bank was only saved from collapse with a massive government bailout. Mr. Rubin pocketed over $100 million for his work with the bank.

 
Is Paying a Bus Driver $38,000 a Year Generous? Print
Friday, 20 May 2011 04:55

Apparently it is, according to a front page news story in the Washington Post on a budget provision approved by the Montgomery County Council that would require county employees to pay much more for their health care. The article notes that range of salaries for county employees, beginning with bus drivers who earn $38,000 a year.

It then tells readers:

"But the way they [the increased employee payments for health care] were passed shows what happens when a wealthy, liberal county is forced to confront years of political accommodation and generous spending."

 
The Nanny Economy in Brazil Print
Friday, 20 May 2011 04:33
The NYT tells us that working conditions and wages are improving for nannies in Brazil. In fact, even some of the nannies now have nannies. It would be useful if this piece included some information on the number of people who work as nannies.
 
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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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