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What Does a "Stabilized" Housing Market Mean to the Washington Post? Print
Monday, 20 September 2010 04:29

The Washington Post told readers that this week's reports on home sales are expected to show increases which it describes as "a sign the U.S. real estate market is stabilizing." It's not clear what the Post means by stabilizing.

While the number of homes being sold each month is likely to remain reasonably even in the months ahead, prices are likely to resume their fall. They still have another 15-20 percent to drop in order for the bubble to fully deflate and prices to return to their long-term trend.

It would be helpful if the Post did not rely exclusively on experts who completely missed the $8 trillion housing bubble. During the years the bubble was expanding the Post's main source on the housing market was David Lereah, the chief economist of the National Association of Realtors, and the author of Why the Housing Boom Will Not Bust and How You Can Profit from It.

 
The U.S. Can Unilaterally Lower the Value of the Dollar Print
Saturday, 18 September 2010 22:43

The NYT had a useful piece on the exchange rate between the Chinese yuan and the U.S. dollar, however it ignored the fact that the United States does not have to ask China to raise the value of its currency. The United States could unilaterally set a lower value for the dollar against the yuan.

For example, it could announce that it would exchange dollars at the rate of 5 yuan to a dollar beginning at some date in the future. While it is illegal for Chinese firms and individuals to take large amounts of currency out of the country, it is likely that many would be able to evade the law for this sort of profit.

If the U.S. were to offer this exchange rate, it is likely that it would quickly become the effective exchange rate. More importantly, if the United States made clear to China that it was prepared to go this route, then it is likely that China would negotiate a path toward a lower valued dollar.

 
Does the NYT Allow Its Reporters to Talk About Drug Patents? Print
Saturday, 18 September 2010 22:26

Readers of an article on clinical trials for a new melanoma drug might think that the NYT prohibits such discussion. The gist of the NYT article is that some people may end up dying because they were selected for the control group rather than the treatment group for an effective drug.

A more serious article would have explored the comment buried in the middle of the article:

"The surest way to get the F.D.A.’s endorsement for a broader market was a controlled trial. And with its competitors rushing to get similar drugs to market, the findings of such a trial might give Roche an advantage in marketing its version as the only one proven to prolong survival."

This is an incredible statement that largely negates the point of the article. Is the purpose of the clinical test to get Roche more profit or is to find out more information about the effectiveness of a drug? Readers do not know.

Suppose that all drug test results were fully public and the patents were placed in the public domain. Would the same issues still exist?

Readers of this article have no idea as to whether the clinical test in question is being done for purely competitive reasons or whether it is necessary to determine the effectiveness of a specific treatment. A serious piece would make this issue clear. Unfortunately, this piece seeks to exploit the tragedy of a young man's death for no obvious purpose whatsoever.

 
Inflation Can Be Good: Washington Post Gets One Right! Print
Saturday, 18 September 2010 08:33

The Washington Post ran an article with the headline: "how a touch of inflation could boost the economy." Give them credit for finally getting something about the economy right.

Of course the article did not go so far as to mention the idea of the Fed deliberately targeting a higher inflation rate in the range of 3-4 percent. This policy has been advocated by such well-known radicals as Greg Mankiw, President Bush's former top economic advisor, Olivier Blanchard, the chief economist at the IMF, and Federal Reserve Board Chairman Ben Bernanke.

 
Washington Post Does Not Understand How Currency Values Affect Trade Print
Saturday, 18 September 2010 08:17

For some reason the people at the Washington Post cannot figure out how currency values affect trade. This is the only conclusion that can be drawn from a front page article that reports on Germany's success, relative to the United States, in exporting to China.

The article does not once mention the relative values of the euro and the dollar in talking about the surge in Germany's exports. At the risk of boring those who have taken an intro econ class, the relationship is very simple and fundamental.

China must buy the currency of the exporting country in order to buy the goods that are being exported. If the foreign currency costs more (measured in yuan, the Chinese currency), then the export costs more. The dollar has risen by roughly 20 percent against the euro since the start of the crisis. This means that to people living in China, the goods exported from the United States have risen in cost by 20 percent relative to the price of goods exported from Germany. It would be comparable to a situation in which China slapped a tariff of 20 percent on all goods exported from the United States.

A serious discussion of Germany's relative success in exporting to China would mention this change in currency values, just as it would mention a 20 percent Chinese tariffs on imports from the United States, if one existed. While Germany has pursued other policies that have helped to support its manufacturing sector, these have not changed appreciably in the last three years and therefore cannot explain the recent surge in exports.

It is also worth noting that Germany's growth since the crisis has actually been slightly slower than that of the United States. The reason why its unemployment rate is lower than the rate in the United States (it has actually below its pre-recession level) is due to Germany's labor market policy. Its efforts to encourage firms to retain workers, including its promotion of worksharing, have been enormously successful in sustaining employment so that German workers have not suffered in the same way as U.S. workers from this downturn. (It is also worth noting that Germany's unemployment rate is 6.9 percent using the standardized methodology in place in the United States, not the 7.6 percent reported in this article.)

 
More Class Hatred at the Washington Post Print
Saturday, 18 September 2010 07:49

Most of the elite have contempt for the portion of the American population that does not have at least 6-figure incomes, however the Washington Post stands out in its willingness to express this contempt so openly. Back in the fall of 2008, when the government was crafting bailouts worth tens of millions of dollars to the likes of Robert Rubin, Lloyd Blankfein, and other well-connected Wall Street types, the Post was frothing at the idea that the government might help protect the jobs of autoworkers earning $27 an hour.

This contempt was fully visible again today when the Post ran an editorial complaining that UAW members who were employees of Delphi, GM's former auto parts division, would get their full pensions. By contrast, the editorial complained that Delphi's management personnel had their pension plan taken over by the Pension Benefit Guarantee Corporation (PBGC) and as a result would get just "pennies on the dollar."

We all know how infuriating it must be to the Post that ordinary working people might get pensions that can sustain a middle class living standard, but they are entitled to their class hatred. However the "pennies on the dollar" claim is more than a bit of a stretch. The PBGC guarantees a benefit of up to $4,500 a month for a worker retiring at age 65. That may be "pennies on the dollar" in Washington Post land, but it's more than most of the rest of us can expect to live on in retirement.

It's true that workers who retire at younger ages will likely take substantial hits on their pension, but this is more likely to be an issue for UAW members who do manual labor on the factory floor than the management personnel who hold desk jobs. The latter are certainly better positioned to work into their 60s than the former.

 
The Reagan-Bush Tax Cuts: What Reporters are Supposed to Do #4376 Print
Friday, 17 September 2010 15:59

Jay Bookman, at the Atlanta Journal Constitution did a very simple analysis of the benefits of Reagan-Bush style tax cuts. He compared the growth of investment and growth in the low-tax Reagan-Bush years with the higher tax Clinton years. Read the piece to see what it shows.

No, it's not conclusive. There were many factors other than tax rates at work. But, if the tax cuts really did have a big effect in boosting growth, they would counteract most of these other factors.

 
Another Washington Post Deficit Editorial in the News Section Print
Friday, 17 September 2010 08:48

The Washington Post had a page two article discussing the prospects for the renewal of the Bush tax cuts. In the middle of the piece it notes that many Democrats are supporting President Obama's plan to phase out the tax cuts for the wealthy, "given the gravity of the country's deficit problems."

The "gravity" of the country's deficit problems is the Post's invention, not something that either exists in the world or is attributed as an expressed concern by any of the actors discussed in the article. This sort of statement belongs on the opinion page, not in the news section.

 
Washington Post Uses Poverty Data to Promote Its Fairy Tale View of Politics Print
Friday, 17 September 2010 05:42

The Washington Post used the release of new Census data on poverty to promote its fairy tale view of U.S. politics. According to the Post: 

"The statistics have quickly become fodder for a debate on the proper role of government in combating economic downturns."

It is not clear what the Post thinks it means by this assertion. Immediately following this statement the article presents two quotes from conservatives who argue that it is important to get the economy growing to combat poverty. It then notes that Congress approved increased jobless benefits over the summer.

It is almost certainly the case that all of the proponents of increased jobless benefits also believe that stronger economic growth is the best way to combat poverty. It is also true that the vast majority of economists agree that increased jobless benefits in the middle of a steep downturn, like the current one, lead to increased growth. These benefits will be quickly spent, spurring demand. Since lack of demand is the main constraint on growth at present, almost anything that spurs demand will spur growth.

In short, the Post has invented a fairy tale about a debate on "the proper role of government in combating economic downturns." There is no such debate in Washington politics. The real debate is between people who want to use the government to shift income upward and those who would rather see the less wealthy majority share the benefits of economic growth.

The Post article also includes a somewhat bizarre quote from Michael D. Tanner, a senior fellow at the CATO Institute:

"We're spending more money fighting poverty than ever before, yet poverty is up. Clearly, we're doing something wrong."

This is comparable to noting that we used a lot of water to combat a really huge fire, yet the fire still did lots of damage, and then concluding that water does not help against fire. Unless the argument is that anti-poverty spending somehow caused the recession, it is not clear how this statement makes sense. The Post has no obligation to print such statements just because someone at a prominent conservative think tank made them.

 
Post's Effort to Contextualize Budget Costs Doesn't Print
Thursday, 16 September 2010 05:14

The Washington Post tried to be helpful in putting various budget items in context by comparing different expenditures/tax proposals. Specifically, it compared the costs of the Bush tax cuts, President Obama's stimulus package, and the TARP. While the comparisons are useful, they are still misleading.

The article points out that the projected 10-year cost of the Bush tax cuts vastly exceeds the $787 billion stimulus package. It also points out that if the tax cuts are extended indefinitely then the government will be receiving lower tax revenue in eternity. 

While the piece is correct in noting that the lost tax revenue will far exceed the cost of the stimulus, it is important to note the timing. There is no plausible argument that the stimulus crowded out any private investment at all. In fact, by almost every reasonable account the stimulus led to increased private investment by boosting demand. In this sense there was zero economic cost to the stimulus.

There is no reason that the Fed could not simply buy and hold forever the debt used to finance the stimulus. This would mean that the stimulus would have effectively added zero to the nation's debt burden, since the interest on these bonds would be paid to the Fed and then refunded directly to the Treasury.

The story of the tax cuts is more mixed. As long as the economy is far below full employment levels of output, tax cuts could also be financed with debt purchased and held by the Fed. However, at some point in the next ten years presumably the economy will be closer to full employment. At that point, if the Fed were to buy and hold the bonds it would lead to inflation. In this case, the tax cuts would be added to the country's debt burden.

However, it is also worth a bit of caution in assessing the long-term impact of the tax cut. Whatever the Congress does in 2010 cannot bind future Congresses for all time. While it may be interesting to ask about the cost of a measure for a long period of time as a point of information, this Congress lacks the power to preserve the Bush tax cuts for eternity.

It is also important to note that the bulk of the cost to taxpayers from the TARP will not be the $66 billion call on the budget noted in the article. Absent the TARP and related measures, Citigroup, Goldman Sachs, Morgan Stanley, Bank of America, along with many other banks, would have gone bankrupt. The government likely would have ended up seizing them and then selling off their assets. 

This would almost certainly have resulted in a situation where the financial sector accounted for a much smaller share of economic activity. Before the crisis, the narrow securities and investment trust sectors accounted for 2.5 percent of private sector output. Thirty years ago these sectors accounted for about 0.5 percent of private sector output.

If the collapse of these financial institutions led this sector contract halfway back to its former share of the economy, then it would have reduced its drain on the economy's resources by an amount equal to approximately 1 percent of private sector GDP, or $120 billion a year. This would come to about $1.5 trillion over the next decade.

This cost will be born in increased demand for goods and services that will lead to inflation unless the government and/or the Fed take steps to reduce demand elsewhere. While this cost may be less visible than pulling taxes directly out of people's pockets, the net effect is the same, the rest of the country will have less money to support their living standards.

 
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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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