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President Obama Proposes a Bank Fee Equal to 20 Percent of Goldman's Annual Bonus Pool Print
Tuesday, 15 February 2011 06:14

The Washington Post noted that President Obama's budget called for a $30 billion bank fee to recoup losses from the TARP. It would have been helpful to give readers some context for this number.

It would raise approximately $3 billion a year, this is less than one-fifth the size of the $17.5 billion bonus pool at Goldman Sachs in 2010.

 
Commodity Prices Are Soaring Back to 2007 Levels Print
Tuesday, 15 February 2011 05:43

The New York Times had a front page story that claimed that companies are being forced to raise prices as a result of rising commodity prices. There are two problems with this story.

First, commodity prices are just returning to their pre-recession levels. The Bureau of Labor Statistics crude goods index stood at 236.1 in December, slightly below the 236.4 level of December 2007 and well below the peak of 301.0 in July of 2008. So, the price pressure from commodities is considerably less than it was at the pre-recession peak.

The other problem with the story is that commodity prices are a relatively small portion of total costs. In principle, companies could easily absorb higher prices, since profit margins are at near post-war highs.

crude_prices

 
David Brooks Shows That You Can Just Say Anything in the NYT Print
Tuesday, 15 February 2011 05:16

After rising rapidly in the 30 years following World War II, living standards for most people in the United States stagnated. The typical family has seen very modest gains in income since 1980. The data show that part of this slowdown stems from a slower rate of productivity growth and part of it stems from an upward redistribution of income.

The upward redistribution of income can be directly traced to a number of policies that were designed to have this effect. For example, we have a trade policy that subjects U.S. manufacturing workers to competition with low-paid workers in the developing world, while largely protecting doctors and lawyers and other highly paid professions.

We have had a Federal Reserve Board policy that explicitly puts downward pressure on the wages of these same workers in order to ensure that inflation stays low. The government has also repeatedly propped up the financial industry, allowing the top executives at major banks to earn vast fortunes. And, it has directed vast amounts of income to drug companies and the entertainment industry through patent and copyright monopolies.

All of these facts are evident to anyone who cares to look. But David Brooks tells us that the reason that we have seen fewer gains in living standards for the bulk of the population is that the rich want to work less than they used to. There is not one iota of data given to support this position, which seems to fly in the face of the evidence that average hours worked for most of the workforce fell rapidly in the first half of the 20th century. It largely stagnated for full-time male workers in the last three decades. (It rose for women.)

In other words, Brooks has absolutely zero evidence for this little story of the stagnation of living standards. But, hey why would anyone expect an evidenced-based column in the New York Times?

Btw, I forgot to beat up on Brooks for another major mistake in his article. He makes a point of telling us that:

"Facebook employs about 2,000, Twitter 300 and eBay about 17,000. It takes only 14,000 employees to make and sell iPods, but that device also eliminates jobs for those people who make and distribute CDs, potentially leading to net job losses.

In other words, as Cowen makes clear, many of this era’s technological breakthroughs produce enormous happiness gains, but surprisingly little additional economic activity."

No, this is 180 degrees wrong. In fact, if new devices, software, or ways of doing business are creating great gains in living standards, as Brooks claims, but require very few workers, then this suggests that they are leading to an enormous amount of economic activity. It is possible that our measures of GDP are not picking up these gains, but if these new innovations are really as important to people as Brooks' seems to believe then the issue is simply one of measurement, not a lack of economic activity.

As a practical matter, economists always know how to create jobs -- we can just have workers put in fewer hours, as one obvious route -- it is only incompetent and/or corrupt politicians who stand in the way of a full employment economy.

 
The New York Times Thinks It is A Problem That Retirees Spend Down Their Savings: Yet More Nonsense on Social Security Print
Monday, 14 February 2011 22:48

The NYT apparently really wants Congress to cut Social Security. How else can someone explain the absurd comment that:

"Some administration advisers wanted him [Obama] to propose specific changes to fix Social Security, which has accumulated surpluses to date but before long will begin paying out more than it takes in from payroll taxes."

Of course the reason that Social Security accumulated surpluses was to cover the period after the baby boom is mostly retired when it is projected to pay benefits that exceed annual revenue. This is not a problem, it is part of the design of the program. If President Obama has any officials who do not understand this basic fact, then they are obviously way over their head.

 
Can Creative Workers Be Creative? Print
Monday, 14 February 2011 08:21
It seems not from this NYT discussion of the extent to which writers end up generating free content for outlets like the Huffington Post. The obvious issue is that a new mechanism is needed to finance the production of creative work, since the old mechanism -- government imposed copyright monopolies -- no longer work in the Internet Age. It is not hard to think of alternatives. The ProPublica model is one, here is another.
 
The WSJ Invents a Spike in Social Security Costs Print
Monday, 14 February 2011 06:16
The WSJ referred to, "a future spike in the projected costs of Medicare, Medicaid, and Social Security." While the costs of Medicare and Medicaid are projected to rise rapidly due to rapidly rising private sector health care costs, the cost of Social Security is projected to increase only modestly. Furthermore, according to the Congressional Budget Office, the higher cost of Social Security will be fully covered through the year 2039 by the Social Security trust fund.
 
China Passed Japan Long Ago Print
Sunday, 13 February 2011 23:27

Let's hope that this is the last silly article telling us that China has just passed Japan as the world's second largest economy. Using a purchasing power parity measure of GDP, China passed Japan several years ago. Its economy is now more than twice the size of Japan's. Japan is still doing fine, since its per capita GDP continues to rise.

Arghhhhhh, Market Place radio committed the same sin in their morning report.

 
The Post Invents Independents' Concerns to Advance Its Budget Agenda Print
Sunday, 13 February 2011 18:08

The Post wrongly told readers that readers that President Obama is proposing budget cuts to independent voters about whom it says:

"this bloc shares the tea party's alarm over the $14 trillion national debt but takes a more nuanced view of how to achieve fiscal balance."

Actually, polling data have consistently shown that independents place a top priority on job creation and see deficit reduction as a secondary concern. President Obama will likely secure more money for his campaign from funders and more positive coverage from the Washington Post and other news outlets by proposing cuts in the deficit, but the polling data suggest that any gains from independent voters will likely be indirect outcomes from these more obvious gains.

 
The NYT Doesn't Realize that the President is a Politician Print
Sunday, 13 February 2011 16:31

The NYT came up with the bizarre assertion that:

"With Republicans in charge of the House, Mr. Obama’s budget is more a statement of his priorities and philosophy than an actual template for federal spending and tax policy."

It is not clear why the NYT would think that the budget proposed by President Obama has anything to do with "philosophy." President Obama is a politician. He got elected president by virtue of the fact that he is a very effective politician. People who express philosophies are typically found in the philosophy departments of colleges and universities, they are not generally found in elected offices.

The article also asserted that:

"The point of Mr. Obama’s [budget] forecast is less to promise a specific result than to signal to voters and financial markets that he is serious about reducing annual deficits."

This leaves out the important group of wealthy campaign contributors. It takes a substantial amount of money to run for president, which to date has only been raised by courting wealthy contributors. Since President Obama hopes to be re-elected it is reasonable to assume that his proposals are structured in a way that would matter to this group of people. It is strange that the NYT article would not mention this fact. 

 
Managers of San Diego Tech Firms Don't Know How to Run Their Business Print
Sunday, 13 February 2011 13:52

That would have been a better headline for an article in the San Diego Union Tribune than the actual headline: "San Diego tech companies can't fill thousands of jobs." The article begins by telling readers:

"Even though the jobless rate continues to hover in the double digits, there are literally thousands of high-paid job openings in San Diego County just waiting for the applicants with the right skills, according to the leaders of the local high-tech community.

But they say that finding those applicants can be a challenge, partly because of the area’s high cost of living and the lingering perception that San Diego’s more of a beach town than a Silicon Valley South."

There actually is a chart accompanying the article that tells readers why tech firms in San Diego may be having trouble getting workers. Of 14 cities listed on the chart, the pay for tech workers in San Diego, adjusted for living costs, ranks 8th. It is more than 30 percent below the pay in Durham, North Carolina, the top paying city on the list.

If firms in San Diego really want to attract more workers then the trick is paying higher wages. Managers of tech companies should understand the way markets work. If they want to attract workers from other cities then they will have to pay more money, if they are unwilling to pay more money, then there is really no shortage. These firms are simply unwilling to hire people at the prevailing wage.

It is also worth noting that the unfilled tech jobs have little to do with the problem of unemployment in San Diego. According to the Bureau of Labor Statistics, there are more than 160,000 unemployed people in San Diego. The article reports that there are 6,000 unfilled tech jobs. This means that if every last tech job was filled (there would always be some vacancies due to turnover), it would reduce the number of unemployed by less than 4 percent.

(Thanks to Mark Paul for the tip.)

 
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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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