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The Jump in Temp Employment in November Print
Saturday, 04 December 2010 09:14
The NYT noted the increase in employment of temporary workers by 45,000 in November. This was by far the most rapid job growth in any sector. In attempting to interpret this rise it is important to keep in mind that temp employment rose by 107,000 last November. It seems as though many stores are opting to fill their seasonal demands for labor with temp employment rather than hiring workers who they may expect to keep on permanently after the holidays, however the pattern is less pronounced this year than last.
 
News of Falling House Prices Makes it to the NYT Print
Saturday, 04 December 2010 09:10
Floyd Norris has a nice piece reporting on the recent patterns in house prices. He notes that the sharpest run-up in prices occurred at the lower end of the market and that these houses have also seen the sharpest price declines and that this process is continuing now.
 
Post Rewrites the Story on Fed Lending Print
Friday, 03 December 2010 06:42

After long insisting that disclosure of the loans made by its special lending facilities would lead to a financial disaster, the Fed made many of the details public on Wednesday, as required by the Dodd-Frank bill. Now that this information has been released and there have been no financial troubles, the Post, which had backed the Fed's refusal to disclose, attacked the proponents of disclosure.

It misrepresented the views of Senator Bernie Sanders, the lead Senate sponsor of the disclosure measure. The Post claims that Sanders had wanted the information made available immediately, as the loans were being made. In fact, Sanders had argued that information on disclosure could have been made available sooner, but not necessarily immediately. It is difficult to contend that a delay of 2 years is necessary or that any disclosure would jeopardize the Fed's conduct of monetary policy, which had been the original position of the Fed and the Post.

The Post also trivializes the fact that many large banks may have made large sums of money by having access to the Fed's lending facilities at a time when liquidity commanded a very high price. This is consistent with the Post's general support for measures that redistribute money from ordinary workers to Wall Street. However, most of the public does not share this goal for public policy.

 
8 or 9 Percent Unemployment in the United States is Not the Same as In Europe Print
Friday, 03 December 2010 06:11
The NYT concluded an otherwise useful article on the long-term unemployed by suggesting the country may just settle in with an 8-9 percent unemployment, which had become the norm in some European countries. It is important to note that these European countries have far more extensive welfare state supports than the United States. This allows the long-term unemployed to still enjoy a decent standard of living in European countries. This would not be the case in the United States.
 
Consumer Spending Continues to Be High, Not Low Print
Friday, 03 December 2010 05:56

The Washington Post repeated the story that consumers have been reluctant to spend due to the bad economy. In fact, the savings rate has hovered around 5.0 percent through the last 2 years. This is well below the pre-stock bubble average, which was more than 8.0 percent. This implies that consumers have continued to spend at an unusually rapid clip, albeit not as fast as when their spending was driven by $8 trillion of housing bubble wealth.

The article also implied that house prices are no longer falling. This is not true, the September Case-Shiller 20 City index showed that prices were falling at an 8.5 percent annual rate. This would eliminate more than $1 trillion in housing equity over the course of a year.

 
The Burden of the Deficit, Are Reporters Prohibited from Explaining It? Print
Friday, 03 December 2010 05:36

The Post continued its editorializing in its news section by gratuitously pointing out in a front page article that negotiations to extend tax cuts and unemployment benefits:

"would add hundreds of billions of dollars to future deficits, even as a bipartisan commission appointed by Obama is trying to build support for a plan to balance the budget."

If the Post was interested in informing its readers rather than pushing its budget agenda it could have pointed out that deficits during a period of high unemployment need pose no burden to the economy or future taxpayers since the Federal Reserve Board can simply buy and hold this debt. In Japan the central bank holds an amount of debt that is close to the size of its GDP, which would be $15 trillion in the United States.

This can be seen in the difference between the IMF's estimate of Japan's gross debt (227.2 percent of GDP) and its net debt (121.7 percent of GDP). In spite of these massive holdings of government debt by the central bank Japan continues to experience deflation instead of inflation.

To some extent the Fed is already following a similar course. As a result of its holdings of government debt and other assets it refunded $77 billion to the Treasury last year, an amount that was more than one-third of the government's net interest payments. A newspaper that was interested in informing its readers rather than pushing an agenda would have explained that deficits in the current context do not impose a burden rather than gratuitously pointing out that spending and tax cuts add to the deficit.

 
The Washington Post's Expert Economic Analysis Print
Thursday, 02 December 2010 13:56

The Washington Post told readers today that the plan put forward by the fiscal commission: "could ignite a serious effort to reduce government debt and spare the nation from a European-style fiscal crisis." This assertion does not appear in an editorial, nor is it presented as the view of any expert or political figure cited in the article.

Rather this is an assertion of fact in a front page "news" story. Of course those who know economics would find this assertion laughable. Unlike the European countries facing fiscal crises, the United States has its own currency. This means that the country need never face the same sort of constraints as these countries. The worst case scenario would be the country would see a bout of inflation from an overstimulated economy. Of course the country is nowhere near this situation now and need never come close to it if the health care sector is fixed, a point never discussed in this article.

Unfortunately, this is not the only piece of editorializing in this article. The article describes the willingness of people on both the left and right to compromise as setting "aside ideological orthodoxy." This sort of condescending characterization of people's positions is left for the opinion pages at serious newspaper.

The article also took sharp issue with the judgement of financial markets telling readers that the Bowles-Simpson proposal: "would bring it [the debt] down to a more manageable 40 percent of gross domestic product over the next 25 years." This implies that the current debt to GDP ratio is not manageable, disputing the assessment of investors who are willing to make long-term loans to the government at interest rates of less than 3.0 percent. In Japan the debt to GDP ratio is 227 percent and investors are willing to make long-term loans to its government at interest rates of close to 1.0 percent. It would be interesting to know what metric the Post has used to determine that current debt to GDP ratios are unmanageable. 

The Post also implicitly patted itself on the back, telling readers that:

"the commission has already attracted more attention and received more respect than nearly anyone predicted." 

The extensive and almost completely uncritical coverage that the Post has given the commission co-chairs is a big part of the "more attention" and "more respect" to which this statement refers. More objective reporting might have noted an apparent conflict of interest when one of the co-chairs gets $335,000 from a major Wall Street bank and the financial industry somehow escapes unscathed from taxation in their proposal. It might have also highlighted the ill-informed and sexist e-mails of the other co-chair, which almost certainly would have led to the summary dismissal of a progressive member of the Obama administration.

 

 
NPR Does an Editorial for Deficit Reduction Print
Thursday, 02 December 2010 05:10

NPR again abandoned journalistic standards in pushing deficit reduction by insisting that doing so is courageous. Given the wealth of the people pushing for cuts to Social Security and Medicare, and the fawning attention that these people get from media outlets like NPR and the Washington Post, it is difficult to see what it is courageous about trying to take away benefits for middle class retirees.

It also wrongly described the deficit as "spiraling." Of course the deficit is not spiraling. The deficit rose in 2008-2010 because the housing bubble collapsed. NPR, like other news outlets, largely ignored the $8 trillion housing bubble. An honest discussion would point out that the deficit has temporarily ballooned because of the incompetence of people who carry through and report on economic policy.

In the longer term the deficit is projected to rise, but that is because of the projected explosion of U.S. health care costs. Our per person costs are projected to rise from more than twice the average in countries with longer life expectancies to more than three times as much.

Honest and courageous politicians and reporters would be talking about the real problem, a broken health care system. They would not be mis-representing it as a problem of a spiraling deficit.

 
Fed Loans: Who Didn't Get Them? Print
Thursday, 02 December 2010 04:56

The NYT and other papers reporting on the Fed's disclosure of information on the beneficiaries from loans in its special facilities includes the Fed's justification that the loans required collateral and the taxpayers were well protected. It would have been worth including some context here.

At the time the special facilities were at their peak, liquidity carried an enormous premium. The Fed was giving out money to banks, non-financial companies, and foreign central banks at interest rates far lower than those available in the private market at the time. This allowed the recipients to make large profits with this money at the time and in many cases kept the companies in business.

It is not surprising that the vast majority of this money was paid back, since the economy did not collapse. However, this does not mean that the loans did not involve a large public subsidy. It is comparable to giving water to people in the middle of a drought. When it rains again, we can easily get the water back with interest, but that doesn't change the fact that providing water in the drought to the folks like Citigroup and Morgan Stanley who got large amounts of it. 

 
Homes Prices are Plunging: Let's Talk About the Deficit Print
Wednesday, 01 December 2010 07:59

The media almost completely overlooked the housing bubble on the way up. In the years 2002-2007 there were probably 1000 stories written about the deficit for every story that raised any questions about house prices being inflated.

Of course the bubble did eventually burst, giving us the worst economic disaster in 70 years. But hey, no one ever said that an economics reporter could learn anything. Yesterday's Case-Shiller data showed that house prices in its 20-City index fell 0.7 percent in September. This would be an 8.5 percent annual rate of decline, which would imply the loss of more than $1 trillion in housing wealth over the course of the year.

The data for the bottom third of the housing market looked even worse. Prices for homes in this segment of the market had a 2.6 percent one-month decline in both Seattle and Boston. They fell by 3.4 percent in Phoenix and 3.7 percent in Portland. Prices for homes in the bottom tier fell by 3.9 percent in both Tampa and Chicago. They fell by 7.0 percent in Atlanta and 7.4 percent in Minneapolis.

The sharp decline in house prices in the bottom tier since the expiration of the first-time buyers tax credit means that the loss of home equity for many recent buyers will have exceeded the value of the credit. In such cases the credit effectively went to the seller, or in the case of underwater mortgages, to the bank that held the mortgage.

For one more interesting data point, the Census Bureau released data on new home sales prices for October last Wednesday. This release reflects much more up-to-date data since it is based on contract prices. The Case-Shiller index is a 3-month average that is based on closings, which typically occur 6-8 weeks after a contract is signed. The report showed that the price of a median home fell 13.6 percent in October hitting its lowest nominal level in 7 years.

These data on falling house prices were largely invisible in business and economic news reporting yesterday. Instead, the focus was the budget deficit and the deficit commission reports. After all, if we don't do anything and the deficits follow their projected course, we will have a really high budget deficit in 2025.

What does it take to get economic/business reporters to pay attention the economy?

 

 
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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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