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The Washington Post Gives Its Readers a False Lesson to Push Its Deficit Agenda Print
Tuesday, 07 December 2010 16:48

In a news story the Post told readers:

"The fiscal crisis sweeping Europe, in which Ireland and Greece have already needed bailouts and Portugal, Spain, and Italy could come next, offers the United States a brutal lesson. By the time the bond market turns on a country - when investors demand higher interest rates or refuse to roll over debt at any price - policymakers have no good options left.

"When that day arrives, a government has little choice but to slash budgets or raise taxes if it wants to satisfy financial markets. But those actions make an already miserable economic situation worse and tend to be vastly unpopular, costing politicians their jobs. Just ask the Irish, who are in such a cycle now."

Actually this is not a story that the United States should ever face -- contrary to the Post's sanctimonious lesson for its readers. Unlike all the countries on its list, the United States has its own currency. This means that, in a worse case scenario, Congress could have the Fed buy government debt. This could create a problem of inflation, but it would not lead to a crisis of type that the article is describing.

The Post's misrepresentation here would be comparable to telling someone living in a steel high-rise that the fire in the straw house across the street shows what happens when you aren't careful with matches. While fire can also harm a steel high-rise, the nature of the risk is qualitatively different than the risk faced by someone living in a straw house. It is wrong to imply that the two risks are the same, as the Post asserts in this piece.

 
The Tax Deal and Stimulus Print
Tuesday, 07 December 2010 03:47

The NYT reported that the cost of the compromise on extending the Bush tax cuts will be approximately $800 billion over two years. It notes that this amount is similar to the cost of President Obama's stimulus package.

It is important to realize that most of the money in this package is maintaining tax cuts in place that were scheduled to expire. This will prevent tax increases from having a contractionary impact on the economy, however there is very little, if any, net stimulus in this package compared with current levels of taxation and spending.

 
Robert Samuelson Never Heard of Productivity Growth Print
Monday, 06 December 2010 05:59

That is what readers of his column today must conclude. He insists that the United States and European countries can no longer afford their current welfare states because of an aging population.

This might be true if there was no productivity growth. However, unless something incredibly bizarre happens, the economy will continue to see productivity growth in the neighborhood of 2.0 percent annually. This means that in 2045 output per worker would be almost twice as high for each hour of work as it is today. This rise in productivity would allow large increases in both the generosity of the benefits provided for retirees and also the living standard of the working population.

 

 
Does the Post Pay Its Staff to Use the Term "Free-Trade"? Print
Saturday, 04 December 2010 09:24

It seems that way since the Post used the term 8 times, including in the headline, in an article that reported on the proposed U.S.-Korea trade pact. (The NYT only found the need to use it once in its article.)

We know that newspapers ordinarily like to save space, which makes it hard to understand why they insist on using the term "free-trade" when they discuss trade agreements which increase protection in many areas. Specifically, deals like the U.S.-Korea trade pact currently in the news enhance protection for patents, copyrights, and other forms of intellectual property claims. They also do not free all trade, leaving in place most of the barriers that protect highly paid professionals (e.g. doctors, lawyers, and economists) from their lower paid counterparts in other countries.

For this reason, these trade deals cannot be accurately called "free-trade" pacts. It is true that these deals generally include the term "free-trade" in their name, but that is not a reason for neutral media outlets to adopt this favorable characterization. In the 1980s President Reagan dubbed the controversial MX missile system, the "Peacemaker." Media outlets did not follow his lead and begin referring to the missile with this term; there is similarly no reason why they should now be referring to trade agreements as "free-trade" agreements, when they clearly are not. 

 
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.

 
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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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