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NYT Decides to Mock Wall Street Critics Print
Sunday, 25 September 2011 09:51

The NYT used its news section to mock critics of Wall Street. It presented the comments of some of the people protesting Wall Street. While the people quoted in this article do appear to be confused about the role of the financial industry in the economy, the paper would have no difficulty finding articulate critics of the financial industry.

For example, it could present the views of Nobel prize winning economist Joe Stiglitz. Or, it could present the views of Nobel prize winning economist, and NYT columnist, Paul Krugman. Or could interview Simon Johnson, a former chief economist at the International Monetary Fund.

It is not clear what news the NYT conveyed to its readers by presenting the views of people who do not appear to be knowledgeable about the economy. This would be comparable to presenting the opinions of some of the more extreme people at a Tea Party rally as representative of the business community's arguments for lower taxes. This has not been done in the NYT or elsewhere.

Thomas Friedman Shows Again That the Economy Offers Good-Paying Jobs for People Without Skills Print
Saturday, 24 September 2011 22:04

Thomas Friedman made another pitch for a "Grand Bargain" in his column today. (This phrase does indeed appear in capital letters in Friedman's column.) The grand bargain involves cuts to Medicare and Social Security (which appear only as "entitlements" in Friedman's column) in exchange for stimulus.

There is no doubt that the economy needs more stimulus. The economy is losing close to $100 billion a month in lost output as a result of the collapse of the housing bubble. Furthermore, the longer this downturn persists the more people will see their lives ruined. Families are breaking up, houses are being lost and the long-term unemployed may lose the opportunity to ever work again. (All of this could have been prevented if people who are paid to opine on the economy, like Friedman, had been capable of seeing an $8 trillion housing bubble.)

However, it is not clear why there should be any cuts in Medicare and Social Security as a quid pro quo. The cohorts nearing retirement, who would almost certainly be prime victims of Friedman's Grand Bargain, have seen most of their wealth disappear as a result of the collapse of the housing bubble. Why does it make sense to hit them again with cuts to Medicare and Social Security?

It might make more sense to hit Wall Street with a financial speculation tax, which could raise more than $1.5 trillion over the next decade. It might also make more sense to reduce payments to the pharmaceutical industry for drugs purchased through Medicare. This could easily save more than $300 billion over the next decade.

In fact, serious people would be focused on reducing health care costs more generally. We spend more than twice as much per person for our health care as people in Canada, Germany and other wealthy countries with nothing obvious to show for this in terms of outcomes. If we paid the same amount per person for our health care as Canada or Germany, it would save the government close to $6 trillion over the next decade.

People more familiar with economics might be pointing to the possibility of raising large amounts of revenue by taxing financial speculation. They might also focus on fixing our private health care system so that it does not threaten to bankrupt the country. But, Friedman would rather take away Medicare and Social Security for retired workers.

The Post's Russia Standard Is Very Different from Its U.S. Standard Print
Saturday, 24 September 2011 05:05

An article on Russia's economy reported on a speech by Russian Prime Minister Vladimir Putin:

"He talked about 'bitter pills' of economic retrenchment. He said wages had outstripped productivity, threatening inflation."

It then added a parenthetical sentence:

"That’s largely because of government policies."

This is a sharp departure from the practice in reporting on U.S. and European economic problems. For example, when reporting on speeches or actions by Federal Reserve Board Chairman Ben Bernanke to counteract the downturn, the Post never points out that the inaction by Mr. Bernanke and other member of the Fed board to stem the growth of the housing bubble is primarily responsible for the downturn.

The same is the case with comments or action by European Central Bank president Jean-Claude Trichet. The Post never points out that his single-minded obsession with a 2.0 percent inflation target, while ignoring the growth of enormous housing bubbles in Ireland, Spain and elsewhere in the euro zone, is responsible for the euro-zone's economic and financial problems.

The Post also never tells readers that all the deficit hawks who it features prominently in both its news and opinion pages were obsessing on the deficit in 2005-2007, even when budget deficits were relatively modest. Their deficit obsession helped to crowd out any public discussion of the housing bubble. The collapse of the bubble both crashed the economy and sent deficits soaring. Yet, the post never includes a parenthetical comment along with quotes from Alice Rivlin, Erskine Bowles or any other prominent deficit hawk pointing out that the current deficits are largely the result of the deficit hawks' dominance of public debate in the pre-crisis period.

In short, it is interesting that the Post felt the need to tell readers that Mr. Putin is largely responsible for the problem that he is complaining about. It does not generally follow this practice.

China Could Reduce Inflation and Boost the World Economy at the Same Time Print
Saturday, 24 September 2011 04:32

The NYT reports on evidence that China's economy is slowing, which it suggests is bad news for the world economy, since China has been a main engine of world growth in the last 2 years. The slowdown that China is experiencing is being deliberately engineered by its central bank as a way to combat inflation.

While the article implies that the slowdown makes it less likely that China would raise the value of its currency, which would increase its imports from the rest of the world and reduce its exports, a rise in the value of the yuan would be an obvious way to achieve the desired slowdown. In other words, as an alternative to the measures taken by China's central bank to reduce lending, the bank could simply raise the value of its currency against the dollar and other major currencies. This route would also have the advantage of directly reducing the inflation rate by making the goods China imports from the rest of the world cheaper.

There are reasons that may opt not to go this route, most obviously that the export-oriented industries may have more political power than the industries that will suffer as a result of the central bank's measures to reduce lending, however it is worth pointing out that these are alternative mechanisms for slowing the economy. If China does not raise the value of the yuan, it is not because its economy is slowing, it is because it has opted to take an alternative route for slowing its economy.

Krauthammer in Full Rant Mode Print
Friday, 23 September 2011 05:42

President Obama wants to raise the tax rate on the wealthy back to the levels of the Clinton years, still leaving them 10 percentage points lower than the rates set in President Reagan's tax cuts. Charles Krauthammer confronts the threat.

Krauthammer warns of "a $1.5 trillion tsunami of tax hikes." (The tsunami is equal to approximately 0.7 percent of projected GDP or less than half of the Iraq-Afghan war induced increase in military spending.)

He then tells us that Obama's tax plans make him "today’s soak-the-rich, veto-threatening, self-proclaimed class warrior." Krauthammer goes on to call President Obama "a leveler, a committed social democrat, a staunch believer in the redistributionist state."

Along the way he also calls President Obama's adoption of the 1990s Heritage Foundation health care plan "the quasi-nationalization of one-sixth of the economy that is health care" and also denounces a stimulus package that was roughly the same size as the Bush tax cuts as "the largest Keynesian stimulus in recorded history." (I guess Bush didn't think of his tax cuts as "Keynesian.")

Pretty strong stuff here, imagine what Krauthammer would be calling Obama if he proposed to return to Reagan's 50 percent top marginal tax rate.

Oil Is Priced In Dollars and It Doesn't Make an Iota of Difference Print
Friday, 23 September 2011 05:30

The Post discussed the turmoil in financial markets yesterday. It told readers that

"Crude oil fell more than 7 percent, to about $80 a barrel, its lowest price in four weeks."

It then went on to say:

"Market observers attributed part of the fall in raw-material prices to investors rushing into dollars. The dollar index moved to a seven-month high after the Federal Reserve announced its decision to buy up $400 billion in long-term debt. Commodities such as crude oil are priced in dollars, so as the currency rises, oil becomes more expensive for holders of other currencies."

This makes no sense. It doesn't matter at all to other countries what currency oil is priced in. As it just reported, oil prices measured in dollar terms fell. This was due to the fact that the value of the dollar rose against other currencies. This means that higher dollar was offset by lower oil prices, meaning that the price of oil would be little changed for most other countries.

The fact that oil is priced in dollars is irrelevant. The situation would be the same for both the United States and other countries if oil were priced in corn. (There is an issue of oil that is purchased under long-term contract. The cost of this oil, if it is denominated in dollars [it may not be, people write any contract they want] would rise to third countries when the dollar rises in value.)

President Clinton, Who Set the Bubble Economy In Motion, Is Giving Economic Advice Print
Friday, 23 September 2011 05:08

The NYT told readers that former President Bill Clinton is planning to write a book giving the country advice on how to improve the economy. At one point the article cites the material from the publisher:

"In the book, according to a statement from Knopf, Mr. Clinton says that the United States has lost its commitment to fiscal responsibility, shared prosperity and balanced growth."

Remarkably, the article does not point out that President Clinton endorsed the high dollar policy that led to the large trade deficits of the last decade. This trade deficit created the gap in demand that was filled by the demand generated by the housing bubble.

This is like the captain of the Titanic giving lectures on safe ocean travel. [Here is a brief discussion of national income accounting for those who need to be reminded why Clinton's high dollar policy set the economy on a course for disaster.]

The NYT Is Wrong, China Can Save the World Print
Friday, 23 September 2011 04:49

The NYT ran a Reuters column in its business section that told readers that China lacked the ability to support the world economy. The piece essentially argued that China will act in its own interest, not the interest of floundering economies in the United States and Europe.

This piece ignores the actions that China is already taking. China's government has bought more than $1 trillion in U.S. government debt to keep up the value of the dollar, in order to sustain its export markets in the United States.It is virtually certain to lose money on these bonds because the dollar will inevitably fall when China stops buying up vast amounts of dollar assets.

This means that China already spends huge amounts of money to sustain its export markets. Switching to purchases of euro zone debt or guarantees of this debt would simply mean redistributing some of the money that China spends to support its export markets, it would not be a change of policy.

On a per dollar basis, China's purchases and guarantees of euro zone debt would almost certainly have far more impact on sustaining its exports than the marginal purchase of U.S. government debt. A collapse of the euro would almost certainly lead to a double-dip recession not only in Europe, but also the United States. This means that if China were to continue its policy of using its currency purchases to support its exports, it should be shifting from supporting dollar to supporting the euro.

They Are Trade Pacts, not "Free-Trade" Pacts Print
Friday, 23 September 2011 04:43

The NYT referred to the trade agreements negotiated with South Korea, Panama, and Colombia as "free-trade" agreements. This is inaccurate. They increase many forms of protectionism, most importantly by increasing the extent of patent and copyright protection in U.S. trading partners.

The Obama administration and Congress are strongly opposed to free trade in intellectual output. The NYT should not misrepresent their views on such an important economic issue.

Can't the NYT Find Someone With a Name to Talk About the World Economy? Print
Friday, 23 September 2011 04:10

In an article on the recent instability in financial markets and the weak world economy, the NYT turned to "a senior World Bank official" for extensive comments about the world economy. The official's comments included no inside information, nor were they qualitatively different from the views expressed by many other economists who would have no problem being on the record.

Many economists have extremely bad track records in assessing the state of the economy, including many officials at the World Bank. For this reason it would be helpful for readers to know the names of the economists whose views are being presented so they know the credibility that should be attached to them.

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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.