The April Jobs report was better than most economists (including me) had expected. Better news is always better than worse news, but it was one report amidst a lot of other less than stellar news. Furthermore, it just was not that good.

Nonetheless the front page Post story hyped the good news in the report and told readers [in print edition only]:

"The jobs report could also have significant implications for the Federal Reserve's $85-billion-a-month stimulus program. .. The program is tied to the outlook for the labor market, and some officials have begun suggesting that job growth could accelerate enough for the Fed to begin winding down the purchases this year."

The Post, like most major media outlets have been shooting from excessive optimism to excessive pessimism about the economy consistently failing to keep their eyes on an underlying trend
of weak growth. (Neil Irwin's blogpost yesterday gets the story almost exactly right.) Just last fall the Post and other news outlets were filled with pieces about how uncertainty over the "fiscal cliff" was already slowing growth and deterring investment. Somehow the people doing the investment did not get the message, as investment rose at a 13.2 percent annual rate in the quarter.

In terms of current data, the Fed probably noticed that new orders for non-defense capital goods (excluding aircraft) were still almost 4.0 percent below their January level in March, even after a 0.9 percent increase from their February level. The March number is less than 0.2 percent above the year ago level. The Fed probably also noticed the construction data released by the Commerce Department last week which showed that total construction spending fell 1.7 percent in March driven by a 4.1 percent falloff in spending by the public sector.

Robert Samuelson actually has a useful column today pointing out the imbalances that underlie the problems in the euro zone. The basic point is that the bubbles of the last decade led to a situation where prices in the crisis countries are hugely out of line with prices in the core countries, most importantly Germany. This means either substantial deflation in the crisis countries, considerably more rapid inflation in Germany and other core countries, or someone leaves the euro.

Samuelson rightly notes that none of these solutions seem likely right now for either economic or political reasons, or both. This means that the crisis is likely to persist for some time into the future.

However there is another part of the story that really deserves mentioning. What on earth were the folks at the European Central Bank (ECB) thinking in the years leading up to the crisis? The misalignment of prices in these countries did not arise overnight. There was considerably more rapid inflation in the current group of crisis countries in the last decade leading to enormous trade imbalances. Here's the data from the IMF showing the deficits as a share of GDP.

Current Account Balance as a Percent of GDP

Source: International Monetary Fund.

These are incredible imbalances. In 2005, when the top people at the ECB went to the annual Fed meeting at Jackson Hole to celebrate the "Great Moderation" and debate whether Alan Greenspan was the greatest central banker of all time, the current account deficits in both Spain and Greece were already more than 7 percent of GDP. This would be a deficit of more than $1.1 trillion in the current U.S. economy. The deficit of 10.3 percent of GDP in Portugal would be almost $1.7 trillion in today's economy. These deficits continued to expand, with Greece's peaking at almost 15 percent of GDP ($2.4 trillion in the U.S. economy) in 2008.

How did the ECB think these imbalances made sense? There was some room for these countries to catch up relative to the core countries, but none of them was a China or India that could plausibly envision double-digit or near double-digit growth for decades. It's hard to envision what story these people could have told themselves that did not have "disaster" in it. But, they did nothing and these economies collapsed.

The people in the crisis countries are now suffering enormously with no end in sight; and the boys and girls at the ECB? They still have their high paying jobs and plush pensions. See, the modern economy does offer good-paying jobs for people without skills.

That's what readers of a Post article discussing the future of Fannie Mae and Freddie Mac would conclude. The piece includes assertions from two experts, David Stevens, president of the Mortgage Bankers Association, and Julia Gordon, the director of housing finance and policy at the Center for American Progress, that 30-year fixed rate mortgages would disappear if the government did not guarantee these mortgages through the GSEs or some other mechanism.

This can easily be shown not to be true by the market in jumbo mortgages. These are mortgages that are too large in value to be insured by the GSEs. A large share of these mortgages are 30-year fixed rate mortgages. Also, while it is less common today, prior to the housing bubble banks did hold a substantial share of their mortgages, typically around 10-20 percent. Since the government was not guaranteeing these mortgages, the banks must have felt the guarantee was unnecessary to get them to issue 30-year fixed rate mortgages.

The issue with Fannie Mae and Freddie Mac is one of the interest rates that people will pay on mortgages, not whether they will exist or not. By having a government guarantee the government is providing a subsidy to homebuyers that comes at the expense of the rest of the economy. The government already provides a subsidy to homebuyers through the mortgage interest deduction, the question is whether it is desirable to provide a further subsidy through this government guarantee.

There is also a question of whether this is the most efficient way to provide the subsidy. The government guarantee can set up a complex system of financial intermediaries that may be difficult to regulate. It may be more efficient to provide any additional subsidy to homeownership through an enhanced tax deduction or credit that would not lead to a bloated financial sector.

These are the issues that should be at the center of the debate over the future of Fannie Mae and Freddie Mac. The Post should have been able to recognize the absurdity of claims about the end of 30-year fixed rate mortgages and have found an expert to clarify this point.

Note: Corrected acronym to "GSE." Thanks to David Stevens.

Thomas Friedman is probably best ignored, but there are people who take him seriously. Today his NYT column touts the "401(k) world" where Friedman says:

"But this huge expansion in an individual’s ability to do all these things comes with one big difference: more now rests on you."

The gist of the argument is that people are more exposed to risk so that means that they can fall farther or, in principle, rise higher than before all the wonderful new technologies that leave Friedman breathless.

Naturally, just about everything Friedman has to say is wrong or misleading. First and foremost, wonderful new technologies are not new. We have been seeing breakthroughs in technology for the last two hundred years. Have the last decade's been more wonderful and awesome than the breakthroughs of prior decades?

How does the Internet compare to development of the telegraph, the telephone, radio, television?  I have a job, so I'll let the Thomas Friedmans of the world worry about that one.

In a Bloomberg column, Matthew Klein gives a brief discussion of errors in New Zealand GDP numbers that he claims supports Reinhart-Rogoff over their critics at the University of Massachusetts, Thomas Herndon, Michael Ash, and Robert Pollin (HAP). However the numbers he gives do not support his case.

He claims that the UMass trio relied on mistaken numbers from the Maddison Project, which is generally taken as an authoritative source on GDP. However, Klein claims that the data given for New Zealand for the years in question is mistaken. After quoting from the UMass paper he tells readers:

"That sounds pretty damning but it turns out that on the New Zealand question, at least, it's Reinhart and Rogoff who are right, and Herndon, Ash and Pollin are wrong."

Klein refers us to data from Statistics New Zealand for 1946-1950, the five years in question:

"According to Statistics New Zealand, the economy grew by 3.0 percent in 1946, 0.4 percent in 1947, and 3.2 percent in 1948. New Zealand's GDP shrunk by 5 percent in 1949 and then grew by 5 percent in 1950."

Let's see that comes to an average growth rate for these five years of 1.32 percent. This is somewhat less than the 2.58 percent average that HAP got using the Maddison Project data, but Klein's number is far closer to the HAP average than the -7.9 percent growth figure for New Zealand that Reinhart and Rogoff used in their calculations.

It's not clear how this shows Reinhart and Rogoff are right about New Zealand and Herndon, Ash, and Pollin are wrong.

Addendum:

I just checked with Michael Ash and he confirmed that the data in their paper all came from the Reinhart-Rogoff spreadsheet. Insofar as this data is wrong, the fault lies with Reinhart and Rogoff, not Herndon, Ash, and Pollin.

The Washington Post is one of the most ardent supporters of the policy of selective protectionism. This policy is designed to redistribute income upward by deliberately putting less educated workers in direct competition with low-paid workers in the developing world, while maintaining or increasing protectionist barriers that prevent highly educated professionals like doctors and lawyers from facing the same sort of competition. The predicted and actual result of this policy has been to redistribute income upward to the protected class.

In order to advance this agenda the Post routinely publishes pieces that attempt to conceal the extent to which the current pattern of trade has hurt manufacturing workers and the whole segment of the labor force that might compete with these workers for jobs. Today it gives readers a segment "dispelling myths about manufacturing." Myth # 2 is:

"Trade and offshoring drove the decline in manufacturing in the U.S."

The piece then tells us the real culprit is productivity growth, not trade. It blames the rapid productivity growth of the years 2000-2010 for the loss of more than 5.5 million manufacturing jobs over the period.

The data suggest a different story. Productivity growth in manufacturing is not new. The 3.3 percent annual rate of growth over this period was impressive, but it's not hugely different from the 2.7 percent rate the country experienced from 1950 to 1979. In that period manufacturing employment increased by 30.6 percent, from 14.8 million to 19.3 million.

The modest difference in productivity growth in these two periods explains only a tiny portion of the difference in employment outcomes. The fact that the United States had a surplus in trade in manufacturing items throughout the first period, while it saw huge growth in its trade deficit in the second period, explains far more of the difference in outcomes.

Okay, neither part of that one is exactly right. According to the Census Bureau the unadjusted rate of homeownership in the first quarter of 2013 dropped by 0.4 percentage points to 65.0 percent. The seasonally adjusted rate edged down by 0.1 percentage point to 65.2 percent. This may not be a "plunge" exactly, but either way you would have to go back to 1995 to find a lower rate of homeownership. (Can we get Alan Greenspan out here to give us another lecture on the glories of subprime and other innovative mortgages?)

It's also not quite right that no one noticed. There are some business reporters who have heard of the Census Bureau. Mark Lieberman had a piece highlighting the new data.

Brad Plummer has a useful post showing that with current policy in place we can keep CO2 emissions constant over the next three decades. The piece notes that this would be inadequate to prevent dangerous levels of greenhouse gases in the atmosphere; for that we would need substantial reductions in emissions.

It is worth calling attention to one comment that may mislead readers. At one point the piece tells readers:

"Some of these measures [continuing current policy], such as re-upping the tax credits for clean energy, would require Congress. (And that wouldn’t be free; the recent one-year extension of the wind credit, for instance, will cost $1.2 billion per year for 10 years.)"

It's unlikely that many readers have a clear sense of how much money $1.2 billion a year is relative to the budget. Spending is projected to average more than $4.7 trillion a year over the next decade. This means that the extension of the clean energy credits would cost less than 0.03 percent of projected spending. This likely would provide more information to readers than the dollar amount.

A front page Washington Post article (print edition) had the headline "in impatient Europe, some see more debt as answer." It would be interesting to know on what basis the Post has determined that Europeans are impatient. Would it, for example, consider Americans impatient because they voted Jimmy Carter out of office when the economy was doing poorly in 1980 or George H.W. Bush in 1992? It is common for people to be upset by economic policies that are causing recessions and high unemployment, this might better be called "common sense" than "impatience."

The article also editorializes in the second paragraph, describing Europe as the "debt-ridden continent." It would be at least as appropriate to describe it as the unemployment-ridden continent" given the double-digit unemployment in many countries. It also questionable whether "debt-ridden" is an accurate description since in many countries the interest burden is not especially high. Arguably this is the best measure of the burden of the debt.  

In an article about problems with the implementation of Obamacare the NYT tells readers:

"Uncertainty over the law’s future hung over employers and investors throughout 2012. 'It impeded the recovery,' said the economist Mark Zandi."

It's difficult to see what this uncertainty would be and who exactly would be affected. The vast majority of large firms, the ones who employ more than 50 people and would face new obligations under the Affordable Care Act (ACA), already provide workers with health insurance. There seems little basis for the often expressed concern that firms can put themselves over the line by hiring a 50th worker, given the fact that firms can fire workers at any time for no reason in the United States. The firms that don't provide health care seem especially unlikely to be worried about dismissing a worker in order to avoid costs imposed by the ACA. (There is also a large amount of turnover, so a firm near the threshold could almost certainly quickly fall below the 50 person cutoff through attrition.

News reports have routinely repeated assertions from economists about uncertainty affecting the economy which have subsequently proven to be without foundation. For example, there were numerous reports in the business press last fall which claimed that uncertainty over the "fiscal cliff" was leading firms to delay investment. As it turned out, investment grew at a 13.2 percent annual rate in the fourth quarter of 2012. It grew at just a 2.1 percent rate in the first quarter of 2013.

When reporters present economists' assertions about uncertainty having an impact on the economy they should press them for evidence for this claim. That could prevent news stories from misleading readers in the future.