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Peter Peterson's Fiscal Times Blesses Deficit Reducers as Being Non-Ideological and Washington Post Concurs Print
Sunday, 20 June 2010 07:26

On the last day of 2009 (yes, coincidentally December 31st), the Washington Post departed from standard journalistic practice by running material produced by the "Fiscal Times" in its own news section. The Fiscal Times is a news service funded by billionaire investment banker Peter Peterson. Peterson has been working to gut Social Security and Medicare for at least two decades, starting and funding a wide variety of organizations that have this as their purpose.

The Fiscal Times is Peterson's latest creation in this line. He had his kid hire some of the journalists displaced by the collapse of the newspaper industry to put it together. While most newspapers would not publish as news material produced by an organization with such a clear agenda, the Washington Post apparently had few concerns along these lines.

Today the Post ran a piece from the Fiscal Times that glorified the efforts of two members of President Obama's deficit commission who are trying to push through a plan that is likely to involve substantial cuts to Social Security and Medicare, the country's most important social programs. The piece implied that the two members who accepted the view that it is necessary to reach an agreement on reducing the deficit in the current political environment are getting beyond ideology. In contrast, those who think it is important to protect social programs that virtually the entire working population will depend on in retirement are somehow being ideological.

It told readers that: "On the fiscal commission, Stern [Andy Stern, former head of the Service Employees Internation Union, one of members highlighted in the peice] is already looking for ways to break through the ideological camps on deficit-reduction." In fact, individuals who are not motivated by ideology would note that the country's projected long-term deficit problem is driven almost entirely by the broken U.S. health care system.

If per person health care costs were the same in the United States as in any other wealthy country, then the projections would show huge budget surpluses rather than deficits. It also should be possible for the people in the United States to take advantage of lower-cost health care systems elsewhere, even if the power of special interests like the insurance and pharmaceutical industry prevent reform here. This basic fact should feature prominently in any discussion of the long-term deficit that is not motivated by ideology. It is never mentioned in this piece.

The article also treats an assertion from Mr. Stern as a basic fact: "Now Stern argues that deficit reduction isn't simply a conservative issue. 'What I keep saying to the progressive community is that when the crisis hits, it's students, workers and poor people who pay the price.'"

Of course, the crisis has hit - the country is facing its worst downturn since the Great Depression. While students, workers, and poor people have paid the price, this is entirely the result of politics. The government quickly moved to rescue the major banks, using vast amounts of public money to save Citigroup, Goldman Sachs, Morgan Stanley and Bank of America from bankruptcy. At the same time, it has refused to spend enough money to boost the economy back to full employment levels of output or take serious steps to prevent people from being thrown out of their homes.

However, the decision to protect the wealthy rather than students, workers, and poor people was entirely a political decision. The banks were able to use their political power to ensure that they got the resources needed to prevent their collapse. On the other hand, those not interested in helping students, workers, and poor people began to highlight concerns about deficits in order to head off additional spending. It may always be the case that the wealthy will dominate the political process to the extent that they do today, but it is worth pointing out that it is politics, not economics, that determines who suffers in a crisis.

 
Did China Make a Mistake Putting Unemployed Workers to Work? Print
Friday, 18 June 2010 05:16

The Post apparently thinks so. It told readers that a year and a half after China initiated a massive infrastructure focused stimulus program that kept its economy growing at near double-digit rates:

"many economists and others here are asking pointed questions: Does China really need all this infrastructure? And what's going to happen when the bills come due?"

Let's think about this one for a moment. China built or rebuilt roads, bridges, railroads, schools, hospitals and other public buildings all over the country. Were some of these projects wasteful -- absolutely. China's economic managers are surely very competent, but when you spend $800 billion quickly, you can be certain that a significant amount of money will be wasted.

So, what was the cost? Well, if only we had smart, prudent, deficit hawk types running things in China, the people who worked on these projects could have been unemployed. The Chinese really lost an opportunity by not listening to those deficit hawk types.

And, what about when the bill comes due? After all, China only has a couple of trillion dollars in foreign exchange reserves and a current account surplus of more than 6 percent of GDP (this would be more than $900 billion annually in the U.S.). With economy growing just 9-10 percent a year, they must be terrified about the looming debt crisis. Arghhhhhhhh!

 
The Realtors are Not Always Honest (Round III) Print
Thursday, 17 June 2010 05:15

Today, USA Today printed the realtors' story (earlier it had been the Post and then Marketplace radio), so BTP repeats an earlier comment. Btw, kudos to the National Association of Realtors for getting so many news outlets to swallow their story, hook, line, and sinker. You might think that an organization that helped inflate an $8 trillion housing bubble by insisting that nationwide house prices will never fall would have limited credibility at this point, but apparently not.

Marketplace radio repeated the National Association of Realtors' (NAR) nonsense that 180,000 homeowners who purchased homes in April may not be able to qualify for the first-time buyers' credit if the original deadline that requires a closing by the end of June is left in place. The NAR wants the deadline extended to the end of September.

As noted earlier, this claim is absurd on its face. While there was an uptick of homes sales in April, this was from rather depressed levels. The April sales volume did not approach the sales levels at the peak of the boom in 2006. At that time, the vast majority of closings took place within 6 to 8 weeks. Therefore, there is little reason to believe that this should not have been the case with the April sales as well.

This is especially likely to be the case since new contracts plunged (as measured by mortgage applications) immediately after the expiration of the credit. This means that workers would be freed up to handle the contracts signed in April.

The main effect of the extension of the credit being pushed by the NAR is likely to be to promote fraud. Many contracts are likely to be backdated so it appears that they were signed before April 30th and therefore qualify for the credit. The NAR has likely exaggerated the number of people potentially affected by the June deadline by at least an order of magnitude.

 
David Broder and Jim Cooper's Creative Economics Print
Thursday, 17 June 2010 04:58

David Broder used his Washington Post column to tell President Obama to stop worrying about the Gulf oil spill. (Hey, who cares about the potential destruction of a whole ecosystem for generations to come?)

He instead repeated an assertion from Representative Jim Cooper and the Wall Street Journal that companies are currently hoarding $1.84 trillion in cash:

"The newspaper noted that the cash reserves had jumped 26 percent in one year, the largest increase since at least 1952. Cooper's point is that by stockpiling that vast amount against the possibility of a double-dip recession or another wave of bankruptcies, nervous executives are starving business of investments for expansion and freezing unemployment at a painfully high level.

'They were badly burned in the Great Recession,' Cooper said, 'and now they are nervous about government policy.' Uncertainties in Washington about energy policy, taxes, financial regulation -- to say nothing about bad-news bulletins from Afghanistan and other overseas datelines -- cloud the economic picture more than oil plumes pollute the gulf."

While there is little economic evidence that would support Representative Cooper's assertion as to why companies are hoarding cash, there is a more obvious explanation. Firms are seeing very weak demand growth in an economy that has near double digit unemployment. There is a large body of research that shows that demand growth is the primary determinant of investment. In the absence of strong demand growth, firms do not want to take big risks on expensive new investments.

The most obvious way to increase to demand growth would be through more stimulus from the government. Both Representative Cooper and Mr. Broder have actively opposed more stimulus. So, the best explanation for why companies are sitting on vast hoards of cash is that people like Representative Cooper and David Broder have blocked efforts at more effective government stimulus.

 
Tell the Post: Lobbyists and Politicians Don't Always Say What They Believe Print
Thursday, 17 June 2010 04:30

Most of us know that lobbyists sometimes argue positions for their clients that they don't really believe. They do this because they are paid lots of money by their clients. The same applies to the politicians who often repeat the lines given them by lobbyists, whether or not they believe them.

The fact that lobbyists and politicians are not always truthful apparently would be news to the Post. It began an article on lobbyists' efforts to block the elimination of a tax break for hedge funds and other special partnerships by telling readers:

"Their [the lobbyists'] worry: That Congress had vastly underestimated the impact that the measure would have on partnerships, one of the primary ways U.S. investors raise capital to invest in businesses and real estate."

While it may actually be the case the lobbyists are concerned that closing this tax break will impair capital formation in the United States, it is also possible that the lobbyists could not care less about capital formation and this was just the best line that they could find to try to prevent the elimination of a tax break that could cost their clients billions of dollars in the next decade.

If the lobbyists argued that their wealthy clients should not have to pay the same tax rate as ordinary workers (as would be the case if the tax break is eliminated), they would probably find little sympathy from the general public. Therefore, they must find some argument about how eliminating this tax break will hurt the economy, no matter how fallacious it might be. Reporters should be aware of this fact.

The article commits the same error near the end when it told readers:

"Some moderate Democrats have worried that the partnership-sale and carried-interest tax increases would hurt the venture capital industry."

The reporter of course does not know what has actually "worried" moderate Democrats. The reporter can only know what the moderate Democrats claim has worried them. The moderate Democrats would be unlikely to say that they get large campaign contributions from venture capitalists and therefore are working to keep their taxes from rising. They would likely claim to be concerned about the health of an important industry even if they were just doing favors for campaign contributors.

 
Can Immigrants Be Doctors? Print
Thursday, 17 June 2010 04:10

The Washington Post has an article on the looming doctor shortage in the United States and some modest measures by the Obama administration to counter the shortage. (According the article, the Obama administration's program will reduce the shortall by less than 0.25 percent.)

It is striking that the article, like most prior pieces on doctor shortages, includes no discussion of immigrants. This is exactly the sort of situation in which we would expect the country to turn to immigrant labor -- jobs that native born Americans apparently no longer want to do. There is no shortage of smart people in the developing world who would be willing to train to U.S. standards and work as doctors in the United States.

The gains to the U.S. would be so large that it could easily afford to repatriate enough money to the home countries so that they could train 2-3 doctors for every one who comes to the United States. This would ensure that the health care systems in the developing countries benefit from this program as well. Unfortunately, since protectionists so completely dominate policy debates in the United States, the idea of increasing the number of foreign trained doctors is rarely raised.

 
What Would Financial Armageddon Have Looked LIke? Or Do They Just Arbrtrarily Throw in Lines Like This in NYT Articles Print
Wednesday, 16 June 2010 20:58

Would good tax policy lead to the second coming? It is a little bizarre to read in a news story that the first time buyers tax credit: "may have helped avert financial Armageddon." Yeah, right, what is this supposed to mean, that the reporter liked it?

News story should report on news. They can include opinions from observers. It should not include bizarre speculation with nothing to support it.

 
Higher Chinese Prices: How We Lower the Trade Deficit Print
Wednesday, 16 June 2010 20:41

USA Today reported that higher wages for Chinese workers could mean higher prices for U.S. imports for China. While the paper reported this as bad news, this is exactly the process through which the U.S. corrects its trade imbalance. There is no other way.

It is also worth noting that higher Chinese prices will work to the benefit of workers who have been placed in direct competition with Chinese workers. While trade negotiators from both parties have actively worked to place U.S. manufacturing workers in direct competition with low-paid workers in China, they have largely left in place barriers that protect doctors, lawyers and other highly-educated professionals from competition with their much lower-paid counterparts in China.

As a result of these one-sided protectionist policies, wages of non-college educated workers in the United States have fallen relative to more highly educated workers. The increase in wages for this segment of the Chinese labor force will improve the relative position of non-college educated workers in the United States. The benefits on the trade balance and for non-college educated workers should have been mentioned in the article.

 
Excuse Me WSJ: But the Fed Was Responsible for the Economic Crisis Print
Wednesday, 16 June 2010 08:10

In the world of Washingtonspeak, history gets rewritten right in front of your eyes. No doubt we will soon discover that the environmentalists were the ones drilling off the coast of Louisiana.

In the spirit of the historical rewrite, Michael Crittenden tells readers in the WSJ blog Real Time Economics that: "the Fed has been a top target for criticism and skepticism following the government’s response to the 2008 financial meltdown."

Uh no, that's not quite right. The Fed has been a top target of criticism because the people running the Fed, Alan Greenspan and Ben Bernanke, could not see an $8 trillion housing bubble, the collapse of which wrecked the economy. This was one of the most astounding acts of economic incompetence of the last century. The fact that the Fed's response to the financial turmoil caused by the collapse of the bubble seems more focused on saving Wall Street than the economy has not helped its standing.

 

 
The Realtors are Not Always Honest Print
Wednesday, 16 June 2010 04:53

Marketplace radio repeated the National Association of Realtors' (NAR) nonsense that 180,000 homeowners who purchased homes in April may not be able to qualify for the first-time buyers' credit if the original deadline that requires a closing by the end of June is left in place. The NAR wants the deadline extended to the end of September.

As noted earlier, this claim is absurd on its face. While there was an uptick of homes sales in April, this was from rather depressed levels. The April sales volume did not approach the sales levels at the peak of the boom in 2006. At that time, the vast majority of closings took place within 6 to 8 weeks. Therefore, there is little reason to believe that this should not have been the case with the April sales as well.

This is especially likely to be the case since new contracts plunged (as measured by mortgage applications) immediately after the expiration of the credit. This means that workers would be freed up to handle the contracts signed in April.

The main effect of the extension of the credit being pushed by the NAR is likely to be to promote fraud. Many contracts are likely to be backdated so it appears that they were signed before April 30th and therefore qualify for the credit. The NAR has likely exaggerated the number of people potentially affected by the June deadline by at least an order of magnitude.

 
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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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