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Washington Post Uses Poverty Data to Promote Its Fairy Tale View of Politics Print
Friday, 17 September 2010 05:42

The Washington Post used the release of new Census data on poverty to promote its fairy tale view of U.S. politics. According to the Post: 

"The statistics have quickly become fodder for a debate on the proper role of government in combating economic downturns."

It is not clear what the Post thinks it means by this assertion. Immediately following this statement the article presents two quotes from conservatives who argue that it is important to get the economy growing to combat poverty. It then notes that Congress approved increased jobless benefits over the summer.

It is almost certainly the case that all of the proponents of increased jobless benefits also believe that stronger economic growth is the best way to combat poverty. It is also true that the vast majority of economists agree that increased jobless benefits in the middle of a steep downturn, like the current one, lead to increased growth. These benefits will be quickly spent, spurring demand. Since lack of demand is the main constraint on growth at present, almost anything that spurs demand will spur growth.

In short, the Post has invented a fairy tale about a debate on "the proper role of government in combating economic downturns." There is no such debate in Washington politics. The real debate is between people who want to use the government to shift income upward and those who would rather see the less wealthy majority share the benefits of economic growth.

The Post article also includes a somewhat bizarre quote from Michael D. Tanner, a senior fellow at the CATO Institute:

"We're spending more money fighting poverty than ever before, yet poverty is up. Clearly, we're doing something wrong."

This is comparable to noting that we used a lot of water to combat a really huge fire, yet the fire still did lots of damage, and then concluding that water does not help against fire. Unless the argument is that anti-poverty spending somehow caused the recession, it is not clear how this statement makes sense. The Post has no obligation to print such statements just because someone at a prominent conservative think tank made them.

 
Post's Effort to Contextualize Budget Costs Doesn't Print
Thursday, 16 September 2010 05:14

The Washington Post tried to be helpful in putting various budget items in context by comparing different expenditures/tax proposals. Specifically, it compared the costs of the Bush tax cuts, President Obama's stimulus package, and the TARP. While the comparisons are useful, they are still misleading.

The article points out that the projected 10-year cost of the Bush tax cuts vastly exceeds the $787 billion stimulus package. It also points out that if the tax cuts are extended indefinitely then the government will be receiving lower tax revenue in eternity. 

While the piece is correct in noting that the lost tax revenue will far exceed the cost of the stimulus, it is important to note the timing. There is no plausible argument that the stimulus crowded out any private investment at all. In fact, by almost every reasonable account the stimulus led to increased private investment by boosting demand. In this sense there was zero economic cost to the stimulus.

There is no reason that the Fed could not simply buy and hold forever the debt used to finance the stimulus. This would mean that the stimulus would have effectively added zero to the nation's debt burden, since the interest on these bonds would be paid to the Fed and then refunded directly to the Treasury.

The story of the tax cuts is more mixed. As long as the economy is far below full employment levels of output, tax cuts could also be financed with debt purchased and held by the Fed. However, at some point in the next ten years presumably the economy will be closer to full employment. At that point, if the Fed were to buy and hold the bonds it would lead to inflation. In this case, the tax cuts would be added to the country's debt burden.

However, it is also worth a bit of caution in assessing the long-term impact of the tax cut. Whatever the Congress does in 2010 cannot bind future Congresses for all time. While it may be interesting to ask about the cost of a measure for a long period of time as a point of information, this Congress lacks the power to preserve the Bush tax cuts for eternity.

It is also important to note that the bulk of the cost to taxpayers from the TARP will not be the $66 billion call on the budget noted in the article. Absent the TARP and related measures, Citigroup, Goldman Sachs, Morgan Stanley, Bank of America, along with many other banks, would have gone bankrupt. The government likely would have ended up seizing them and then selling off their assets. 

This would almost certainly have resulted in a situation where the financial sector accounted for a much smaller share of economic activity. Before the crisis, the narrow securities and investment trust sectors accounted for 2.5 percent of private sector output. Thirty years ago these sectors accounted for about 0.5 percent of private sector output.

If the collapse of these financial institutions led this sector contract halfway back to its former share of the economy, then it would have reduced its drain on the economy's resources by an amount equal to approximately 1 percent of private sector GDP, or $120 billion a year. This would come to about $1.5 trillion over the next decade.

This cost will be born in increased demand for goods and services that will lead to inflation unless the government and/or the Fed take steps to reduce demand elsewhere. While this cost may be less visible than pulling taxes directly out of people's pockets, the net effect is the same, the rest of the country will have less money to support their living standards.

 
The Post Insists on Ignoring the Over-Valued Dollar In Discussing International Competitiveness Print
Thursday, 16 September 2010 04:59

Suppose the United States gives a subsidy equal to 30 percent of the purchase price for people who buy imported goods. It also taxes all goods that are exported from the United States by 30 percent. This subsidy and tariff regime would likely have a substantial effect on international competitiveness.

The Washington Post does not see it that way. A front page article that discussed the production of energy efficient light bulbs, and the factors determining plant location, did not once mention currency values.

This reflects an incredible level of incompetence. It would be like discussing the Louisiana fishing industry without discussing the BP oil spill.

 
Man Who Wrecked the Economy Says Stimulus Didn't Work Print
Wednesday, 15 September 2010 15:41
That could have been the headline of an article reporting former Federal Reserve Board Chairman Alan Greenspan's negative assessment of the stimulus. But, hey this is the Wall Street Journal.
 
The Good News On Retail Sales Print
Tuesday, 14 September 2010 14:28

The media are anxious to find good economic news, hence they seized on the August retail sales data as evidence that the economy is moving forward again. While the 0.6 percent reported growth in non-auto sales is somewhat better than expected, it is somewhat less impressive when we remember that the July data were revised down by 0.1 percentage point.

Also, much of the growth was driven by higher gasoline sales, which is most likely due to higher prices rather than more consumption. Non-auto, non-gas sales were 0.5 percent higher than in August than in July and just 0.3 percent about the June level. This is not exactly robust growth.

 
Amid a Shift of Business Contributions to Republicans, a Growing Number of Democrats Would Prefer to Extend All Tax Cuts, Print
Monday, 13 September 2010 04:54

This phrase could have appeared in a Washington Post article that noted many conservative Democrats are now supporting the extension of the tax cuts even to high income taxpayers. Instead the article attributed the switch in sentiments to concerns about a "weakening economy." It is worth noting that the congresspeople in question have not been known for their concerns about unemployment at other times. 

At one point the article asserts that: "Democrats will also take on the forces of globalization." It is not clear what taking on the forces of globalization means. Is someone who proposes a trade agreement "taking on the forces of globalization?" There seems to be some implication that the Democrats are pushing back against some predetermined "forces of globalization," but of course no such thing exists.

Everyone wants to shape globalization in certain ways. For example, the software, entertainment, and pharmaceutical industries all want to impose increased copyright and patent protection throughout the world. This could be described as attempting to "take on the forces of globalization" with much greater accuracy than the measures described in this article.

The article also refers to efforts to recover $15-18 billion in revenue over the next decade to cover the cost of various proposals. This is equal to approximately 0.05 percent of projected revenue over this period.

 
Pharmaceutical Industry Funded Study Shows that Unauthorized Drug Copies Save Tens of Millions Print
Sunday, 12 September 2010 10:17

This is the clear implication of a new industry funded study, even if USA Today essentially ran an ad for the pharmaceutical industry by headlining its piece: "growing problem of fake drugs endangers consumers' health." The article highlighted the fact that unauthorized copies of drugs sometimes do not meet the same standards as the official version, but also notes that: "counterfeiters are now able to fake drugs so well that even experts find it hard to distinguish the copies from the real deal." This implies that often the unauthorized versions will be every bit as good as the brand drugs.

According to the article, the study finds that the unauthorized drug market is between $75 billion and $200 billion a year, but adds: "the market is likely much bigger because many cases are hard to detect." If we assume an average prescription price of $2 (many of these drugs are sold in the developing world), then this implies that the unauthorized market involves sales of 37 billion to 100 billion prescriptions year. If 1 in 1000 of these prescriptions save a life (because the patient could not afford the authorized version), then unauthorized drugs save between 37 million and 100 people a year.

In an act of unbelievable sloppiness this article fails to distinguish between unauthorized copies, where the buyer knows that they are not getting the brand drug and genuine counterfeits, where the buyer is deceived about the drug they are buying. It also would have been helpful to include a discussion of alternatives to patent support for prescription drug research. Government imposed patent monopolies are the root cause of the high prices that create a huge market for unauthorized copies of drugs.

 
Fun With George Will Print
Sunday, 12 September 2010 08:32

The Washington Post likes to run columns that are chock full of mistakes so that readers can have fun picking them apart. That is why George Will's columns appear twice a week. Let's have a little fun with the latest, which is an attack on President Obama's economic agenda.

First, Will is anxious to tell readers that Democrats are telling the public that stimulus did not work because many think we need more stimulus. Actually, people who think we need more stimulus simply note that the stimulus was helpful, but not large enough for the task. According to the Congressional Budget Office, the stimulus added between 1.7 and 4.5 percent to GDP since its enactment (that's between $240 billion and $740 billion in additional output). It also lowered the unemployment rate by between 0.7 and 1.8 percentage points.

This was not enough to fully offset the damage from the collapse of an $8 trillion housing bubble. The collapse wiped out more than $1.2 trillion in annual demand (roughly $600 billion in lost consumption and $600 billion in lost construction). By comparison, the stimulus injected about $300 billion a year into the economy in 2009 and 2010. Roughly half of this was offset by cutbacks at the state and local level. So, we were looking at a net increase government sector stimulus of $150 billion, which was being used to counteract a decline in private sector demand of $1.2 trillion. 

Is anyone surprised that this was not enough? Will's conclusion that stimulus does not work is like seeing someone throw a few buckets of water on their burning house and then telling the fire department not to waste time with their hoses, because obviously water will not be effective against the fire.

Will then goes on to tell readers that Herbert Hoover was a great supporter of fiscal stimulus. Actually, real spending did increase under Hoover, but this was primarily because of the huge deflation of the era. In any case, the facts do not support Will's claim that:

"Real per capita federal expenditures almost doubled between 1929, Hoover's first year as president, and 1932, his last."

Actually, real federal expenditures rose by less than 20 percent if we follow Will and take 1932 as the endpoint. If we include 1933, which was partially a Hoover budget, then the increase is still just 44.9 percent. That is substantial, but certainly not "almost doubled."

Will goes on to complain that:

"Barack Obama has self-nullifying plans for stimulating the small-business sector that creates most new jobs. He has just endorsed tax relief for such businesses but opposes extension of the Bush tax cuts for high-income filers, who include small businesses with 48 percent of that sector's earnings."

Actually, most of the businesses whose taxes will be affected by the increase will only be trivially impacted. According to an analysis from the Congressional Joint Committee on Taxation, the average tax hit from Obama's plan on filers earning between $200,000 and $500,000 (the overwhelming majority of the affected small business owners) is $400. It is unlikely that a tax increase of $400 will have a big effect on the investment or hiring decisions of a business netting $350,000 a year. 

Therefore, the answer to question posed by Will: "does this increase anyone's confidence?" is almost certainly that it probably has almost no impact on anyone's confidence since it is largely irrelevant to the decisions of the vast majority of businesses.

Finally, Will ends by making a simple mistake of logic. He wants to beat up on the Cash for Clunkers program by arguing that only 1 in 6 of the cars purchases under the program were actually induced by the tax credit, as opposed to simply moving up a purchase that would have taken place anyhow.

While one may hope for a better ratio (and others have calculated higher ratios), since spending at a time of very high unemployment is essentially free, who cares? If we did not have the cash for clunkers program, fewer people would have bought more fuel efficient cars. The unemployment rate would be higher and we would be consuming more energy and emitting more greenhouse gases. How is that good? 

Will also complains that Cash for Clunkers hit poor people by raising the price of used cars. While it definitely did raise the price of used cars, most poor people already own cars. This means that Cash for Clunkers raised the price of the cars they own. For poor car owners this picture is largely a wash, their next car will cost more, but they will get more money on a trade-in. First time buyers are unambiguously hurt, but this is a minority of the poor.

 

 

 
Imagine If NYT Columnists Like Thomas Friedman Had to Know About the Great Recession? Print
Saturday, 11 September 2010 23:06

Then they wouldn't write ridiculous things like: "our generation’s leaders never dare utter the word 'sacrifice.' All solutions must be painless." If someone told Friedman about the recession, that nearly 15 million people are unemployed, that nearly 9 million are underemployed, and millions more have given up working all together, then he would not be saying nonsense about how baby boomers are looking for painless solutions.

On this planet, the vast majority of baby boomers, who have to work for a living, are already experiencing vast amounts of pain. What planet does Mr. Friedman live on and why on earth is he given space in the NYT to spew utter nonsense?

 
Can the NYT Refer to the Debt Without Using a Term Like "Ballooning?" Print
Saturday, 11 September 2010 08:15

Apparently not, since they feel the need to constantly tell readers in the news section that the paper considers the deficit/debt to be too large. There is no information added by the inclusion of the word "ballooning" in this sentence: "The specter of a ballooning national debt has led even some of the early supporters of the cuts, including the former Federal Reserve chairman Alan Greenspan, to advocate letting them expire." 

The sentence could have been more accurate and shorter if told readers that Mr. Greenspan claims (the reporter does not know Greenspan's real views on the economy) that concerns over the national debt cause him to advocate letting the tax cuts expire. 

 
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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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