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What's This "We" Jazz, Larry Summers? Print
Sunday, 15 May 2011 08:06

In an interview in the NYT Larry Summers, who was Treasury Secretary under President Clinton and head of President Obama's National Economic Council, was asked about his portrayal as a supporter of deregulation in Inside Job and Frontline. In his response he said:

"Did we 10 years ago foresee everything that happened with respect to derivatives? Absolutely not."

Of course there were people who did foresee problems with a vast unregulated derivative market, most notably Brooksley Born. As head of the Commodity Futures Trading Commission in the Clinton administration she proposed tighter regulations for options, futures, credit default swaps and other derivative instruments. She was beat back in this effort by Alan Greenspan, Larry Summers, Robert Rubin, and other Clinton officials with close ties to Wall Street.

Some of us also saw the growth of the housing bubble and recognized the enormous risk that it posed to the economy. Mr. Summers was not among that group nor was anyone else among President Obama's economy advisers.

The NYT Doesn't Understand Marginal Tax Rates Print
Sunday, 15 May 2011 07:43

The NYT ran a column asking whether people who make more than $250,000 are really rich. It told readers that the richest 2 percent of the population face money problems also, suggesting that those near this cutoff for tax increases by President Obama might be unfairly victimized.

The poster child for this story is a person named Mason, who live in Manhattan with 2 young children and reportedly makes $262,000 a year. Since the 3 percentage point increase in the tax rate would only apply to income above $250,000, or $12,000 of his income, Mason would have to pay an additional $400 a year in taxes.

This comes to approximately 0.16 percent of Mason's income. If he gets his entire income from working a 2000 hour year, then Mason will have to work about 3 more hours a year to cover this tax increase.

AP Spreads Nonsense on Oil: Can Republicans "Know" the Earth is Flat? Print
Saturday, 14 May 2011 11:50

Fool or liar? That is the only question that needs to be asked of anyone saying that they want to promote domestic oil production in order to bring down the price of gas.

The simple fact is that there is not enough oil in the United States to bring down the price of gas to any noticeable degree. This is not a debatable point, the United States has 22.3 billion barrels of proven reserves. The U.S. consumes around 20 million barrels a day. This means that we could supply the country for 3 three years with domestic production.

Of course, from the standpoint of domestic oil prices what matters is the U.S. contribution to world production. This is around 90 million barrels a day. In an incredibly optimistic scenario the U.S. could increase its domestic production by 2 million barrels a day, this would increase output by a bit more than 2 percent [thanks Rogermac]. The net effect might be a reduction in price @5-6 percent. Even this price decline would take around 8-10 years to realize.

There is not much basis to dispute these basic facts. Therefore when AP reported that Doc Hastings, the Chairman of the House Natural Resources Committee, said:

"The president is finally admitting what Republicans have known all along, that increasing the supply of American energy will help lower prices and create jobs."

It should have pointed out to readers that increasing domestic supplies will not lead to noticeable effect on prices. Readers may not have the time to discover this fact for themselves.

NYT Misreports European Growth Print
Friday, 13 May 2011 05:31

The NYT told readers:

"The Federal Statistics Office in Germany reported on Friday that gross domestic product grew 1.5 percent over the previous quarter, when harsh winter weather had held growth to just 0.4 percent."

Let's see, GDP growth in the United States was 1.8 percent in the first quarter, so I guess we're doing a bit better than Germany at this point.

Wrong!!!! The growth figure reported by in this article is a quarterly rate of growth. The annual rate of growth in Germany in the first quarter was a very solid 6.1 percent.

It is difficult to understand why the media insist on reporting quarterly rates of growth when the standard in the United States is to report GDP growth as an annual rate. Often it is not even clear that the growth being reported is a quarterly rate. For example, later in this piece the NYT tells us:

"France, too, surpassed expectations with growth of 1 percent, the steepest increase since spring 2006, according to the statistics office Insee in Paris. That compared to an increase of just 0.3 percent in the last quarter of 2010, and a median forecast of economists surveyed by Reuters and Bloomberg News of 0.6 percent."

This is like reporting the temperature in a European country as being 20 degrees without bothering to tell readers that this is the temperature measured on the Centigrade system. Presumably the point of this article is to convey information to readers. If we want to let people in the United States know how hot it is in France then the proper way to do this is to convert the Centigrade measure into a Fahrenheit measure.

If the point is to let people in the United States know how fast Germany and France are growing then the growth rates should be reported as annual rates. It's that simple.

[Addendum: I corrected the German growth figure from 4.9 percent that I had gotten from a Wall Street Journal article. What I took to be an annual rate of growth for the first quarter was in fact a year over year rate of growth. Stefan Karlsson had the correct number.]

Post Highlights Bad News on Unemployment Claims Print
Friday, 13 May 2011 05:17

Just kidding. Buried in their business digest section we learn:

"Other reports showed that the number of workers filing claims for unemployment insurance dropped less than forecast last week and that wholesale prices climbed more than projected in April.

Applications for jobless benefits decreased 44,000 in the week ended May 7, to 434,000, Labor Department figures showed."

I couldn't find even this much in the NYT. (Here's the bad news story.)

If the Government Gets Ripped Off On Health Care, Does That Mean that Medicare Beneficiaries Are Getting a Good Deal? Print
Friday, 13 May 2011 04:58

It does according to Marketplace Radio. It told listeners this morning that Medicare beneficiaries were getting a good deal because Medicare benefits cost almost three times as much as beneficiaries paid into the program in taxes. The main reason for this gap is the United States pays more than twice as much per person for its health care as the average for people in other wealthy countries. It has no obvious benefit from this added spending in the form of improved outcomes.

The main reason for the extra costs in the United States is higher payments to drug companies, doctors, medical supply companies and other health care companies. It is peculiar to claim that beneficiaries are getting a good deal because the government overpays health care providers.

The Post Reports That Efforts To Circumvent Patent Monopolies May Have Led Google to Accept Illegal Ads Print
Friday, 13 May 2011 04:50

Actually the Washington Post never mentioned patent monopolies in an article reporting that Google is likely to pay a $500 million fine for running ads from illegal pharmacies. The main reason that there is a market for illegal pharmacies is that government granted patent monopolies allow drug companies to charge prices that are several thousand percent above their free market price.

This fact should have been mentioned. This would be like reporting on illegal efforts to circumvent tariff barriers without effort referring to the tariffs. In the absence of patent monopolies, these rogue pharmacies and the resulting enforcement issues would not exist.

Did David Brooks' Mother Tell Him That the Debt is "Ruinous" or Does He Just Enjoy Beating Up the Elderly? Print
Friday, 13 May 2011 04:26

That what readers of today's column, "Let's Go Caps!," are asking. The article begins by telling readers that he is excited over the possibility that there may be a deal to address the "nation’s ruinous debt problem."

This raises the obvious question of how he determined that the debt problem is "ruinous." Is it the 3.2 percent interest rate on government bonds? That is certainly a much lower interest rate than we have seen through most of post-World War II era.

Is it because of the $110 billion (0.7 percent of GDP) in interest that the government paid out last year, net of the money refunded by the Fed to the Treasury? This is a much lower share of GDP paid out in interest than the average for the post World War II era. 

There is no obvious event in the world that could justify calling the debt problem ruinous. The country does face a risk of exploding private sector health care costs, which is projected to lead to large budget deficits in the long-term. However it would be peculiar to call this health care problem a debt problem and if we fixed the health care system the deficit would be a non-issue

Since there is no evidence in the world that would justify calling the debt problem "ruinous," we can assume that this is just the sort of belief that was passed on to Brooks by his parents, in the same way that religious beliefs can be passed on. People can hold these views in a way that is not susceptible to logic and evidence in the same way as other beliefs might be.

Of course, there is also the alternative that Brooks may just be excited about the possibility that there will be cuts to programs that the elderly depend upon, like Social Security, Medicare, and Medicaid. Readers will no doubt be debating this question for some time.

Washington Post Offers Free, and Not Very Good, Political Advice to Democrats in Congress Print
Friday, 13 May 2011 04:15

The Washington Post had a piece reporting on the Senate Republicans' positions on the debt ceiling. At one point the article tells readers:

"McConnell’s assistance is also critical to Senate Democrats. Unless they can win Republican votes, they would have to approve one of the largest debt-limit increases in U.S. history entirely on their own — an unappetizing prospect for up to a dozen potentially vulnerable incumbents who are up for reelection next year."

Actually, almost all of the cuts that McConnell would insist upon as part of a deal to increase the debt ceiling are likely to pose far more political problems for Democrats up for re-election than voting for a higher debt ceiling. The vast majority of voters have no idea of what the debt ceiling is nor how large any particular increase is relative to anything in the world. This is largely due to the fact that the media almost never puts this issue into any context, for example pointing out that the main reason the debt has soared is due to the recession caused by the collapse of the housing bubble.

To most voters, a politician voting to raise the debt ceiling by any amount simply means that he/she voted to allow increased borrowing of "a really big number." By contrast, a deal with Senator McConnell would mean cutting Medicare, Medicaid, unemployment insurance and/or other programs that enjoy the overwhelming support of the electorate. It is far from clear that Democratic politicians would do better in the next election if they take the Post's advice and agree to these cuts in order to get Senator McConnell's support on raising the debt ceiling.

Unemployment Insurance Claims Again Come in Over 400,000: This is News Print
Thursday, 12 May 2011 08:11

For the fifth week in a row new unemployment insurance (UI) claims came in over 400,000. The number for last week was 434,000, bringing the 4-week moving average to 436,750, the highest it has been since November.



Source: Department of Labor.

This should be real news. There were a lot of explanations for increases in the prior weeks based on administrative issues or the timing of Easter. These factors can explain a one-week jump, but they imply lower claims in the preceding or following week.

At this point, the data are clearly giving a warning of weakness in the labor market. It is also worth noting that many newly unemployed workers will not be eligible for benefits since they have been unemployed for much of the last two years. (Eligibility for benefits is based on recent work history. Someone who was unemployed for 8 months, and then employed at a low-paying job for 4 months, and then laid off, likely will not have an earnings history that qualifies them for benefits.) If ineligible workers generally do not apply for benefits, then 434,000 new claims in 2011 would correspond to more layoffs than 434,000 claims in May of 2008.

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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.