CEPR - Center for Economic and Policy Research

Multimedia

En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press

Beat the Press

 facebook_logo  Subscribe by E-mail  


China Has Long Been the World's Second Largest Economy, Again Print
Sunday, 29 August 2010 19:39

Why is it so hard for reporters to understand the idea of purchasing power parity? This is important if anyone is interested in understanding China's importance in the world economy. China produces and consumes more output in a wide variety of goods and services. This would not make sense for an economy that is just passing the size of Japan, putting China's economy at a bit more than one-third the size of the U.S. economy.

The more realistic measure is the purchasing power parity measure that puts China's economy at almost two-thirds of the size of the U.S. economy. This measure applies a common set of prices to all goods and services, regardless of which country they are produced in. This measure of China's GDP is far more consistent with a country that both buys and produces more cars than the United States, has more Internet users and twice as many cell phones users.

 
Nonsense from Deficit Hawks Threatens to Keep Tens of Millions Needlessly Unemployed Print
Sunday, 29 August 2010 07:27

The NYT told readers that the Fed's ability to take steps to boost the economy are limited because:

"The dramatic expansion of the national debt — which began in the Bush administration, via hefty tax cuts and two wars — has ratcheted up fears that, one day, creditors like China and Japan might demand sharply higher interest rates to finance American spending."

It may be true that such "fears" may prevent the steps to raise employment in the same way that children fear monsters in the dark, and therefore feel the need to keep the light on when they sleep, but reporters should also point out that such fears have no basis in reality. If China and Japan "demand sharply higher interest rates," then it would mean that the dollar would fall sharply against their currencies.

This is exactly the policy that the Obama administration is ostensibly committed to. The lower value of the dollar would lead to a sharp boost to U.S. exports and a fall in imports, lifting growth and employment. It is difficult to understand why anyone would fear the outcome that we are ostensibly committed to seeing. In short, the "fears" have no basis in reality and are promoted either out of ignorance or by people who have ulterior motives.

At one point the article tells readers that Germany has done relatively well in this downturn without using stimulus:

"Germany, which has long harbored particularly powerful fears of inflation, has done relatively well in the current downturn without large stimulus spending, and that experience is now cited by adherents of austerity."

Dishonest adherents of austerity do cite this experience, but it is easy to show that the Germany history does not support their case. According to the OECD, government consumption expenditures increased more in Germany since the downturn than in the United States.

germany-U.S._23832_image001

 

It is worth noting that Germany should have an easier time recovering from this downturn since its economy was not driven by a housing bubble. The main impact on Germany's economy has been through a decline in exports.

It would have been useful if this article had included the views of some economists who were able to see the $8 trillion housing, the collapse of which led to the downturn.

 

 

 

 
The Fed Is Still Clueless About Bubbles and So Is the WSJ Print
Saturday, 28 August 2010 14:26

The economists and central bankers attending the annual meeting of central bankers in Jackson Hole, Wyoming apparently have not noticed the collapse of the housing bubble and the wreckage it has caused. This is the only plausible explanation for a WSJ article that told readers about a paper on a new approach to fiscal policy that argues:

"fiscal policy could benefit from the more scientific approach taken by monetary policy over the past two decades."

The article continues:

"The former U.S. Federal Reserve economist [the person presenting the paper] noted how monetary policy has improved after central banks started to adopt goals such as inflation targeting and as central bankers started to articulate the 'science' in public speeches."

People who pay attention to the economy know that the monetary policy pursued over the last three decades has devastated the economy, leaving tens of millions of workers in the United States unemployed or underemployed. It would be hard to imagine a policy that could produce more disastrous results than the single-minded focus on inflation that central banks followed even as housing bubbles in the U.S. and elsewhere grew to ever more dangerous levels.

If the central bankers and economists at Jackson Hole still don't understand how harmful these policies have been then it should raise enormous concern in Congress and among the general public about the competence of the people controlling economic policy. This should have been the main focus of a news article on the meetings.

 
The Washington Post Says Tens of Millions of Workers Will Have to Suffer for Years Longer Because of the Policies It Promoted Print
Saturday, 28 August 2010 07:51

The Washington Post's lead editorial told readers that there is not much the Fed or anyone else can do to get us out of an economic situation with near double-digit unemployment. It concludes its piece with a vague set of policy recommendations that include "education, tax reform and entitlement reform."

This is pretty much the same agenda that the Post was pushing back in 2002-2007 when others were warning about the dangers of the housing bubble. The Post had no room on its news or opinion pages for these warnings. It seems that it still doesn't. Its policy prescriptions are remarkably impervious to evidence or changed circumstances.

 
Did the Fed's Decision to Pay Interest on Reserves Slow Growth? Print
Saturday, 28 August 2010 07:23

In his speech at the annual meeting of central bankers in Jackson Hole, Wyoming, Federal Reserve Board Chairman Ben Bernanke listed his options to counter a faltering economy. One of the three items on the list was reducing the 0.25 percent interest rate that the Federal Reserve Board now pays on reserves.

It is striking that Bernanke would include this item on his list because he just instituted the policy of paying interest on reserves last year. At the time there was no discussion of the possibility that paying interest on reserves would have any significant negative impact on growth. If paying interest does not slow growth, then reducing the interest rate paid on reserves cannot raise growth.

Reporters covering Mr. Bernanke's speech should have made this point, since it suggests that he does not have any real plans to deal with a weak economy. It would have also been worth pointing out that the economy is growing much slower than the 3.0 to 3.5 percent range that the Fed had forecast earlier in the year. The second quarter data showed the economy growing just 1.6 percent, with final demand growing at a 1.0 percent rate. If Bernanke is prepared to take action in response to a weak economy, this would appear to be the time, as the unemployment rate is likely to rise through the rest of the year.

It is worth noting that at this gathering 5 years ago the participants debated whether Alan Greenspan was the greatest central banker of all time.

 
A Shortage of Rental Housing? Print
Friday, 27 August 2010 21:59

That's what NYT columnist Joe Nocera is apparently worried about. That doesn't quite fit the data. The Census Department data show that rental vacancy rates are at record highs.

The article also claims that many otherwise creditworthy borrowers are unable to get mortgages. This is inconsistent with the Mortgage Bankers Association data on mortgage applications. This series shows applications going through the floor since the end of the first-time buyers tax credit in May. (That is why people who follow the housing market were not surprised by the plunge in sales reported for July.)

If creditworthy borrowers were finding it difficult to get mortgages then it would be expected that the number of applications would be rising sharply relative to the number of sales, since many buyers would have to make multiple applications to get a mortgage and some would make several applications and still not get a mortgage.

 
The Post Talks About the Trade Deficit Without Mentioning the Over-Valued Dollar Print
Friday, 27 August 2010 07:13

The Washington Post accomplished what might have seemed impossible: it had a major front page article on the trade deficit without once mentioning the over-valued dollar. The only vague reference comes near the end in a sentence that refers to "China's currency and other policies."

Those folks who took economics would remember that the main determinants of a country's trade deficit are its GDP and the value of its currency. Other things equal, when a country's economy expands, it buys more of everything, including more imports. This means that GDP could be a culprit in the trade deficit, but there would be few people who would claim that our GDP was too high in the years 2005 and 2006 as the trade deficit was hitting record shares of GDP.

This leaves the other culprit, an over-valued currency. The value of the dollar determines how expensive imports are relative to U.S. goods. If the dollar fell in value, we would buy fewer imports. This is a point which is widely accepted outside of the confines of the Washington Post. Of course, a lower dollar will also boost U.S. exports since it will make our exports cheaper to people living in other countries. For these reasons, a discussion of currency values would be featured front and center in a serious discussion of the trade deficit.

 

 
David Brooks Takes Advantage of Affirmative Action for Conservatives Print
Friday, 27 August 2010 04:10

Suppose Paul Krugman or Bob Herbert got just about everything wrong in their columns on a regular basis. Suppose that they were not just wrong on peripheral matters, but on facts that were central to their argument. What would happen?

These progressive columnists would almost certainly be sent packing. There are plenty of smart articulate progressive writers. If these two couldn't get their facts right, the NYT would have no problem finding someone to replace them who could.

Apparently, the same does not apply to conservative columnists as demonstrated by David Brooks. He gets his facts wrong on a regular basis and not just on side matters. Often the mistake is on an issue that is the central point of his column.

He gave us a beautiful example today. He told readers that the United States had decided to go the big government route to recover from the downturn whereas Germany had gone the austerity route. Brooks tells readers:

"This divergence created a natural experiment. Who was right? The early returns suggest the Germans were."

He then points to Germany's 9.0 percent growth in the second quarter compared to the near stagnation in the U.S. economy.

Brooks is good enough to note that, "results from one quarter do not settle the stimulus/austerity debate," but let's ask if they show anything.

The chart below shows the OECD's estimates of real government expenditures for Germany and the United States since the third quarter of 2008.

germany-U.S._23832_image001

Yes, that's right. David Brook's austerity model has seen a sharper increase in government spending since the crisis than his stimulus model. This suggests that the Germany/U.S. comparison might be somewhat less compelling then he implies.

How long would Krugman or Herbert be working at NYT if they made mistakes like this on a regular basis?

 

 

 
The Plunge in July New Home Sales Was Not Due to the Expiration of the Tax Credit Print
Thursday, 26 August 2010 04:39

In an article reporting on the plunge in new home sales reported for July, the NYT wrongly told readers that "July was the first month that home buyers could no longer qualify for a tax credit of as much as $8,000, which analysts said may have contributed to the decline." The end of the tax credit was a major factor in the plunge in existing home sales reported on Tuesday, but not the drop in new home sales.

The existing homes series refers to the closings on existing home sales. These sales were typically contracted 6-8 weeks earlier. While the homes that were closed in June likely qualified for the homebuyers tax credit, this would not be true of the existing homes that closed in July.

However the new home sales refer to contracts signed for selling new homes. May, not July, was the first month in which contracts would not qualify for the tax credit.

 
When it Comes to Regulating Banks, Nothing Is Easy Print
Thursday, 26 August 2010 04:32
Good piece in the NYT about enforcing the Volcker Rule, which limits the extent to which banks can trade on their own account.
 
<< Start < Prev 341 342 343 344 345 346 347 348 349 350 Next > End >>

Page 348 of 383

CEPR.net
Support this blog, donate
Combined Federal Campaign #79613

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.

Archives