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The NYT Wants Debates Over Class to be Debates Over Culture Print
Thursday, 08 July 2010 04:24

The NYT noted the split within the Democratic Party between those who want to see more stimulus and those who want the government to focus on deficit reduction. It then told readers:

"But in a more fundamental way, the argument over fiscal policy represents the churning of a cultural fault line that has defined and destabilized Democratic politics pretty much since the onset of the Great Society."

Umm, "cultural fault line?" I remember the 60s. There were student and anti-war types on one side and the Democratic Party establishment on the other side, a key bulwark of which were the unions. What does this split have to do with the current divide, which places anti-war types and unions on the same side against Wall Street and business oriented Democrats on the other side?

The focus on "culture" rather than economics leads to further confusion throughout the piece. The article argues the need to rein in entitlement spending. No one disputes the need to reduce the trend growth rate in spending on Medicare and Medicaid. The question is how this is accomplished.

The Wall Street Democrats want to cut spending by reducing benefits under these programs. The "traditional" Democrats want to reduce spending by making the U.S. health care system more efficient. If per person health care costs were the same as in the U.S. as any other wealthy country, then the United States would be looking at enormous surpluses in the long-term, not deficits. However, fixing the U.S. health care system would involve reducing the profits of the insurance industry, the pharmaceutical industry and other powerful interest groups in the health care sector. The Wall Street Democrats do not want to hurt these interest groups while the traditional Democrats do.

Read more...

 

 
The Washington Post Has Not Heard that the Retirement Age for Social Security Has Been Raised Print
Wednesday, 07 July 2010 05:08

In her column bashing AFL-CIO President Rich Trumka, Washington Post columnist Ruth Marcus complains that Trumka got angry at the suggestion that the retirement age for Social Security be raised in response to the increase in life expectancy in recent decades. Apparently, Ms. Marcus did not know that the retirement age has been raised already. In 1983, Congress voted to raise the normal retirement age from 65 to 67 over the period from 2002 to 2022. Ms. Marcus seems unaware of this 27 year-old law.

Marcus also implies that Trumka believes that the country's fiscal problems can be solved exclusively by taxing the rich. This is  not true. Trumka and the AFL-CIO have consistently been strong proponents of measures that would make the U.S. health care system more efficient, such as a public health insurance option and negotiated prices for prescription drugs.

Such measures would make health care much more affordable for both the public and private sector. If per person health care costs in the United States were the same as in any other wealthy country, the United States would be looking at huge long-term budget surpluses rather than deficits. It is difficult to understand how Marcus could have missed this aspect of Trumka's political  agenda.

It is important also to note that measures that reduce the trend toward growing inequality, such as improved corporate governance that reins in CEO pay or a trade policy that is not designed to increase inequality, would also have beneficial budgetary impact. As more income goes to those at the middle and bottom, there would be less need for various government transfer programs. It would be useful if Post columnists would try to directly address the agenda of the unions, rather than caricature it in order to discredit it.

 
India's Enforcement of Patent Laws Should Not Affect Drug Manufacturer's Investment Decisions Print
Wednesday, 07 July 2010 04:53

The NYT had an article on the growth on India's pharmaceutical industry in which it raised its enforcement of patent laws as an issue affecting manufacturers' decision to locate in India. There is no obvious reason why there should be any relationship between the two.

Scientists in India can gain the knowledge to manufacture patent protected drugs regardless of where the manufacturing operations are located. Placing the facilities within India would minimally increase this ability. It is difficult to believe that this additional risk would be an important consideration for drug companies although they may use their location decision as a way to coerce India and other countries to adopt more protectionist patent regimes.

 
Use Annualized Growth Numbers Print
Wednesday, 07 July 2010 04:47

It is standard in the United States to report GDP growth and other economic data as annual rates. That is not the case in other countries where it is common to use quarterly growth rates. Rather than just picking up the number as reported in other countries, reporters should convert it to an annualized rate so that their audience in the United States will understand what is being reported. (This is the point, right?) Usually, just multiplying by 4 gets you there, although for higher growth numbers, it would be best to do it right and take the number to the 4th power.

The NYT got it wrong this morning in telling readers that the UK grew 0.3 percent in the first quarter. Its annual rate of growth was 1.2 percent.

 
Opponents of Stimulus "Say" They are Concerned About the Deficit Print
Wednesday, 07 July 2010 04:43

That is the way reporters are supposed to report on the opposition by members of Congress to extending unemployment benefits and aid to the states. Reporters do not know the actual reason that these representatives are voting against these measures, they only know what they say.

That is why NPR got it wrong when it said that opponents of more stimulus spending are concerned about the deficit. This misled listeners this morning.

 
Competition: Where Profit Margins Come From Print
Tuesday, 06 July 2010 18:19

The NYT warned readers that rising labor costs in China pose a serious threat to many companies that manufacture products there:


"makers of personal computers, cellphones and other electronics — including Dell, Hewlett-Packard and LG — deal with much slimmer profit margins [than Apple] according to several analysts. 'The challenges are going to be much bigger for them,' Ms. Lai said. Most other industries, from textiles and toys to furniture, are under considerably more pressure."

Actually, since China is the low-cost producer, it is not clear that rising wages there will pose a serious threat to even low margin firms. If costs for competitors rise also, due to the higher wages, then all the firms in the industry will be able to raise their prices to cover their costs leaving their margins little affected.

 
Joint Chief of Staff Overestimates the Deficit Print
Tuesday, 06 July 2010 04:44

Morning Edition ran a piece (not on its website) today that presented the view of the Admiral Mike Mullen, the chairman of the Joint Chiefs of Staff, that the national debt is the greatest threat to the security of the United States. According to the piece, Mr. Mullen claimed that in a couple of years the United States would be spending $600 billion a year in interest, an amount that he claimed was larger than the defense budget.

According to the Congressional Budget Office, the government is projected to spend $298 billion in interest in 2012 (@ 2 percent of GDP), less than half of projected spending on defense.

 

 
The Arrogant David Brooks Tells Readers That Stimulus Will Risk National Insolvency Print
Tuesday, 06 July 2010 03:27

David Brooks has decided to jump into the debate over stimulus with both feet. In a column in which he warns against arrogance he tells readers that additional stimulus would: "risk national insolvency on the basis of a model."

Mr. Brooks doesn't tell readers how he has determined that further stimulus carries this risk. He doesn't explain how raising the country's debt to GDP ratio by 4-8 percentage points over the next few years would jeopardize the creditworthiness of the U.S. government. This is certainly a rather strong assertion, given that even with this additional indebtedness, the debt-to-GDP ratio in the United States would still be far lower than it had been at prior points in its history.

Even after a decade of accumulating debt at a rapid pace, the U.S. would still face a lower debt burden than countries like Italy do today. Italy is currently able to borrow in financial markets at very low interest rates. Projections for 2020 show that the debt burden of the United States would still be less than half of the current debt burden of Japan, which still pays less than 2.0 percent interest on its long-term debt.

Financial markets also don't seem to share Mr. Brooks view that national insolvency is a serious concern. The people who are putting their money on the line are willing to buy 10-year Treasury bonds at just 3.0 percent interest rates. That would seem to suggest that insolvency is not a real concern, but Mr. Brooks insists that President Obama should hesitate on stimulus because he thinks that insolvency is a problem anyhow, and the people who disagree with him are arrogant.

Read more...

 

 
Alan Krueger is Wrong, Robust Recoveries Do Move In Straight Lines Print
Monday, 05 July 2010 12:00

In an article reporting on the weak jobs report for June, the NYT quoted Alan Krueger, the chief economist at the Treasury Department, as saying "economic recoveries don’t move in straight lines.” Actually robust recoveries from steep downturns, like the one we just experienced do move in pretty much straight lines.

When the economy first start creating jobs rapidly in April of 1983, following the 1981-82 recession, it generated more than 200,000 jobs a month for 20 straight months. The one exception was in August of 1983 when a strike at AT&T led to a reported loss of 308,000 jobs. This was more than offset by a gain of 1,114,000 jobs in September. Given the growth in the labor force, 200,000 jobs in 1983 would be equivalent to more than 300,000 jobs a month in 2010.

 
Douthat Redefines Pessimism Upwards Print
Monday, 05 July 2010 07:56

The NYT's Ross Douthat gave pessimism a new meaning when he noted the economy's poor jobs performance in June and commented that:

"It’s now been 30 months since the beginning of the recession, and it looks as if it could take another 30 or so to regain the level of employment we enjoyed in the autumn of 2007." Actually, we are down about 7.7 million jobs right now from the pre-recession peak. Making this up in 30 months would require creating jobs at a rate of more than 250,000 a month. This is a faster pace than we have seen in any month of the recovery thus far (excluding Census jobs). There are few forecasters who are this optimistic about the economy's performance over the next two and a half years.

It is also worth noting that his claim that the economy was harmed by pessimism surrounding the stagflation of the late 70s is somewhat dubious. Investment, the component of output most sensitive to attitudes, was at a record share of GDP at that time. The investment share of GDP in the late 70s still has not been exceeded. 

 
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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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