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Bruce Reed, New Biden Adviser, Did Not Encourage Free Trade Print
Saturday, 15 January 2011 09:08

The Washington Post wrongly asserted that Bruce Reed, who will be Vice President Joe Biden's chief of staff: "encouraged free trade and deficit reduction during the economic boom years of the 1990s."

This is not true. Reed, along with Gene Sperling and William Daley, the other recent Obama picks mentioned in the article, pushed for trade agreements that had the effect of putting manufacturing workers in more direct competition with low-paid workers in Mexico and other developing countries. Such deals had the predicted and actual effect of lowering the wages of manufacturing workers and non-college educated workers more generally.

None of these people have been associated with a larger free trade agenda, which would include efforts to eliminate the professional and licensing barriers that protect highly educated professionals like doctors and lawyers from foreign competition. And all three have been supportive of the protectionist portions of recent trade deals that increase the strength of copyright and patent protections. For these reasons, it is totally inaccurate to describe Reed, as well as the other Obama officials, as supporters of "free trade." 

Republicans Call Obama Policies "Job Killers" Because the Media Might Ask for Evidence If They Called Them "Baby Killers" Print
Saturday, 15 January 2011 08:45

The key to being an effective politician is making the most damning charge possible about your opponent that the media will view as credible. The Republicans have been very effective in this respect because they routinely refer to President Obama's health care bill as "job killing" and use similar language to refer to other measures that he has pushed.

Serious reporters would ask the Republicans for evidence that the bill has actually killed any jobs. If the charge was true then the Republicans should be able to point to a sharp upturn in average hours worked per worker, as firms worked their existing employees harder rather than risk the cost of taking on a new worker. The Republicans would also be calling attention to the huge surge in temporary employment, as firms looked to temp firms for their workers rather than put workers on their own payroll. And, Republicans would note that the firms most affected, those employing near 50 workers (bigger firms almost all already provide health care and smaller firms are largely unaffected) are lagging other firms in employment.

Of course the Republicans do not provide this evidence because it does not exist. Average hours per worker is up somewhat from its low-point in the downturn, but it is still far below its pre-recession level. Employment of temps is also up slightly from the trough of the downturn, but it is still more than 20 percent below the pre-recession level. And it would be very difficult to find any evidence in the data on employment by firm size that mid-size firms are any more reluctant to hire than the larger or smaller firms that are less affected by the health care bill.

In principle, reporters have the time to investigate allegations like the claim that the health care bill is costing jobs. Readers on the other hand do not. If the Republicans can make an untrue assertion and simply have it passed along as a credible statement, because reporters do not do their jobs, then we should expect them to make even stronger statements. Perhaps we will soon be reading accusations from Republicans that President Obama and the Democrats are baby killers. After all, given the current practice of the national media, they would likely just pass the charge along as a reasonable statement about events in the world.

Did You Hear the One About the 445,000 New Jobless Claims Last Week? Print
Friday, 14 January 2011 10:53

Yeah, well it's not really very funny, but you should have been able to read about the big jump in UI claims last week. These data are erratic, and it is only one week, but after a couple of weeks in which news outlets were eagerly touting lower claims numbers, to be consistent they should have given this jump some attention.

Claims had hit a low for the upturn of 391,000 in the week after Christmas before rising back to 410,000 last week. This was still good news compared to the 450,000 levels we had been seeing in the summer and early fall. After the last recession, the economy was not creating any jobs until weekly claims fell below 400,000. Certainly claims in the 450,000 range would not be consistent with robust jobs growth.

News in the Post: President Obama Is Not Doing What The Post Wants Print
Friday, 14 January 2011 07:39

In most newspapers "news" is something that happens. However, the Washington Post chose to make one of its major news stories the fact that President Obama doesn't seem as concerned about reducing the deficit as it wants. Since there is no real event in the world that is highlighted, this is the only real way to describe this piece. (The article does refer in passing to the fact that the bond-rating agencies, who rated hundreds of billions of dollars of subprime mortgage backed securities as investment grade, threatened to downgrade the government's debt. However these warnings are just mentioned in passing.)

One might think that it is also news that President Obama does not have any plan to reduce the 9.4 percent unemployment rate. However, this is apparently not as big a concern at the Post.

The NYT Can't Find Any Economists to Talk About the United States' Debt Problem Print
Friday, 14 January 2011 06:22

That appears to be the case. The NYT had an article discussing the warnings about downgrading U.S. government debt from S&P and Moody's, both of whom rated hundreds of billions worth of mortgage-backed securities backed by subprime mortgages as investment grade. 

At one point the article notes that Moody's emphasized the deficit in the medium term, not the current deficit. It then tells readers that:

"For some economists, the failure to rein in the deficit now could spell trouble, not immediately but in 10 or 20 years."

However, the two people then cited are Peter G. Peterson, a wealthy investment banker, and David M. Walker, an accountant who has worked for organizations funded by Mr. Peterson. While both Mr. Peterson and Mr. Walker stressed the need to reduce the deficit, if the article had talked to an economist they might have pointed out that the projections of large long-term budget deficits are attributable to projections of exploding private sector health care costs. If per person health care costs in the United States were comparable to those in other wealthy countries the projections would show large surpluses rather than deficits.

Ford's Labor Costs Divided by Hours of Work Is NOT Their Hourly Compensation Print
Thursday, 13 January 2011 16:22

The NYT told readers that Ford's labor cost for a worker is now $59 an hour, which is says is down 20 percent from what it used to be. It is important to recognize that this number is not what Ford is paying for current workers' pay and benefits. This includes all payments that Ford makes for labor, including contributions to its pension and health funds for workers who are already retired.

This is an important distinction. Unionized auto workers are paid more than the typical worker, but their pay is not as out of line as this figure implies.

Credit Rating Agencies That Rated Subprime Junk as Investment Grade Warn U.S. Over Downgrade Print
Thursday, 13 January 2011 08:00

This would have been an appropriate headline for an article about warnings from S&P and Moody's that they might downgrade U.S. debt. These credit agencies rated hundreds of billions of dollars worth of mortgage backed securities that were backed largely by subprime and Alt-A loans as investment grade. Of course they were paid large amounts of money by investment banks for these ratings.

It would be appropriate to provide readers with background information so that they can better assess these sorts of warnings. It also is worth noting that Japan's debt was downgraded by S&P back in 2001 and in 1998 by Moody's. The interest rate on Japan's 10-year Treasury bonds is currently a bit over 1.0 percent. Clearly the downgrading by these credit rating agencies have not had much effect on Japan's ability to borrow.

Be Thankful that Illinois Already Had an Income Tax Print
Thursday, 13 January 2011 06:10

Otherwise the NYT would have told readers that the legislature had supported an infinite percentage increase in the state income tax. Telling readers that Illinois increased its income tax by 66 percent provides little information to most readers, since they are not likely to know Illinois's current tax rate. (This does appear lower down in the article for those who read far enough.) Furthermore, "66 percent" invites confusion with 66 percentage points, which would be a devastating tax increase.

As it stands, the increase in the tax rate was 2 percentage points, from 3 percent to 5 percent. It would have been more informative to readers if this information was provided at the top of the article.

Paul Krugman on the Euro Crisis Print
Thursday, 13 January 2011 05:43

Paul Krugman does a very good job laying out the issues behind the euro zone crisis in his NYT Magazine piece. There are two additional points that would have been worth noting.

First, there are powerful forces who are working hard to prevent the partial or full Argentinification (partial default or a departure from the euro) of any euro zone country. After all, it does mean that banks and other creditors don't get back all of their money. They will lie, cheat, and steal to try to prevent such a route from even being considered. We know this because of the efforts of the international financial community to punish Argentina when it went the route of Argentinification back in 2002.

The IMF did everything it could to strangle Argentina (it was known internally as the "A" word) including the publication of consistently over-pessimistic growth projections in order to undermine confidence in its economy. Given that many of the same people who were shooting at Argentina in 2002 are still around in positions of responsibility today, it is reasonable to believe that any country that tried to follow the same path would face similar efforts at economic sabotage.

The other important point is that the "revived Europeanism" route that Krugman outlines would essentially be costless right now to the core countries who would ostensibly be financing it. This is the route that would have the European Union and/or European Central Bank provide the funding necessary to get Ireland, Greece, Spain and other peripheral countries through the crisis. 

This route would be largely costless because Europe, like the United States, has huge amounts of excess capacity and idle resources. The ECB could essentially finance the transfers by buying bonds (i.e. printing money) just as the Fed can (and to some extent is) finance the U.S. deficit by buying bonds. While printing money at other times would raise the risk of inflation, this is not the case in the middle of a steep downturn like the current one. Of course a modest increase in the rate of inflation (e.g. 3-4 percent) would be desirable in any case since it would lower real interest rates and reduce real debt burdens.

In the longer term, when the economy does recover, the ECB or the Fed could raise reserve requirements to ensure that the reserves placed into the system in a period of economic crisis do not lead to excessive inflation. This scenario would allow Germany, France and other core countries to bail out Europe's periphery without any burden on their own taxpayers.

Steven Pearlstein Needs an Economics Lesson Print
Wednesday, 12 January 2011 06:48

Individuals are generally risk-averse. This is why they buy items like life insurance and health insurance. On average, people pay more for these protections than they get in benefits. This means that they fear bad outcomes (e.g. early death or severe illness) and that they are willing to forgo income to protect against this situation.

The fact that individuals are risk averse explains why state and local governments can benefit by offering workers defined benefit pensions. Since governments generally do not go out of business, they can provide pensions that smooth out fluctuations in the market. This is of great value to individual workers, who do not want to take the risk that the stock market will be down at the point when they retire.

Therefore, state and local governments can offer workers defined benefit pensions that impose little risk, if properly managed. Since the guarantee is of considerable value to workers, it means that these governments will have to pay workers somewhat less than would otherwise be the case. Therefore a defined benefit pension should save state and local governments money. 

Washington Post columnist Steven Pearlstein has apparently never learned this basic economics lesson, hence his diatribe in the paper today.

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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.