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  


Question for Thomas Friedman: Is Airbnb So Cool and Hyperconnected That it Can Put People in Fire Traps? Print
Sunday, 20 July 2014 16:50

It would be nice if someone could force Thomas Friedman to learn a little bit about the topics of his columns. Today he ran another ad for Airbnb, touting its hyperconnectiveness. While Friedman is ecstatic over the company's hyperconnectiveness, he fails to answer the most basic questions.

Can Airbnb guarantee that its rooms are safe? If not, can we sue and imprison its executives if people who use the service die in fires? What about the nuisance of living next to a hotel room when you paid to buy a condo or rent an apartment? Can neighbors of popular guest rooms sue Airbnb for the diminution of the value of their homes?

These questions are probably too complex for someone like Thomas Friedman, but perhaps the NYT could hire someone to seriously deal with the issues that Thomas Friedman raises.

 

Note: An earlier version raised questions about local and state taxes, which Airbnb reports it tries to collect.

 
Just Because the World's Poor Benefitted Partly at the Expensive of the Middle Class, Doesn't Mean It Could Not Have Been Otherwise Print
Sunday, 20 July 2014 06:55

Suppose a mob boss has his thugs go around and shake down a bunch of small business people. Imagine he then gives a portion of the haul to poor children. When the business people complain, the mobster then tells them they are being greedy, after all don't they care about the poor children?

This is esentially the argument that Tyler Cowen gives us in the NYT this morning. There is little doubt that hundreds of millions of people in developing countries like China and India have benefited from the growth in the world economy over the last three decades. To some extent their gains have come from displacing workers in rich countries, especially the United States. However we did not have to structure the world economy this way.

People in developing countries could also have experienced enormous gains if their doctors and other highly educated professionals were allowed to compete on an even footing with their counterparts in the United States and other rich countries. Similarly, there would be enormous gains from allowing India's generic drug industry to sell low cost drugs like generic Sovaldi in the United States and elsewhere. And, we all would benefit from taxing the financial industry like other sectors of the economy and ending too big to fail subsidies for Wall Street banks. Furthermore, in a period of secular stagnation like the present, everyone could benefit from just handing large amounts of cash to the world's poor, since it would generate demand. 

Just because the world's poor benefited at the expense of the middle class in rich countries does not mean it had to be this way. We could help poor children without having a mobster shake down small businesses to finance his charitable contributions.

 
Why Is the NYT Editorial Board So Protectionist When It Comes to Doctors? Print
Sunday, 20 July 2014 04:43

Most economists agree that trade is one of the main reasons that less-educated workers have seen a decline in their relative wages over the last three decades. The story is pretty straightforward. Trade policy has been designed to put manufacturing workers in the United States in direct competition with workers in developing countries like Mexico or China, who sometimes earn less than $1 an hour. This causes many workers in the United States to lose their job and puts serious downward pressure on the wages of workers who manage to keep their jobs.

Given this fact, it is striking that trade, or more precisely allowing more foreign doctors to practice in the United States, does not even rate mention in a NYT editorial on a prospective doctor shortage. Doctors in other wealthy countries get paid on average about half of what they get in the United States. Doctors in developing countries get paid even less. This suggests the possibility of enormous gains from allowing more foreign doctors into the country to bring wages of physicians here in line with those in other wealthy countries. (We could easily compensate developing countries for losing doctors by providing them with the money to educate two or three doctors for every one that comes here -- please think about that one for a minute before writing a silly complaint about brain drain.)  

Anyhow, it striking that the class bias in trade policy is so extreme that any policy that is designed to provide even limited protection for less-educated workers, such as the temporary tariffs on imported steel that President Bush imposed in 2002, are immediately denounced as protectionist by all right-thinking people. Yet trade can not even be discussed, even when there is potential for enormous gains, if the losers would be highly-educated professionals like doctors.

 
Fraudulent Subprime Auto Loans: The Cost of Obama's Soft on Crime Policy Print
Sunday, 20 July 2014 04:30

It is fraud when an issuer of a loan knowingly puts down false information in order for the loan to be approved. When a securitizer includes large numbers of these loans in securities, as Floyd Norris reports was the case with Citigroup during the housing bubble, this is fraud. 

The Obama administration decided not to pursue criminal cases against executives at the major banks who likely committed fraud on a large scale. As a result, most of these bank executives are almost certainly better off as a result of their decision to commit fraud, even though the fraud has been exposed, than if they had obeyed the law.

When crime goes unpunished it naturally leads to more crime. Hence the NYT reported today that subprime auto lenders are doing many of the same scams that subprime mortgage lenders did in the housing bubble days. They are issuing loans, often for more than the value of the car, based on phony income numbers that the lenders themselves wrote in. In a time of generally low interest rates, these loans can be attractive to investors and Wall Street banks are therefore anxious to purchase them and securitize them.

The scale of the subprime auto loan sector is an order of magnitude smaller than the subprime mortgage sector during the bubble days, so it does not pose the same risks to the financial system. (Also, there is not a risk of a downward spiral in car prices as was the case with house prices during the bubble.) However these loans can lead to enormous hardship for the people affected, causing many to be pursued by creditors for years or forced into bankruptcy.

 
The Washington Post Says It Doesn't Miss Lower Unemployment and Rising Wages Print
Saturday, 19 July 2014 10:14

That might not be a surprise to regular readers of the paper, but there it was in black and white in a column talking about the budget deficit. The piece notes how the deficit has gotten much smaller in recent years and therefore people are paying much less attention to it. The last line in the piece told readers;

"Well, we don’t miss the deficit. But we sure miss that clock [a debt clock used as campaign prop by Governor Romney]."

Actually, people who care about jobs and wage growth do very much miss the deficit. The spending that was cut to reduce the deficit was creating jobs. There is no magical process by which this spending will be replaced by demand in the private sector, which means that the reduction in government spending means less demand and jobs in the economy. [If the deficit hawks at the Post think otherwise they could grab themselves a quick Nobel prize in economics by showing how.] 

In addition, fewer jobs means that those at the middle and bottom of the labor force have less market power and therefore less ability to secure higher wages. This is good news for the small segment of the population that owns lots of stock and can benefit from higher corporate profits and cheap help, but it is bad news for the vast majority of people in the country. At least the Post has made clear which side they are on, just in case there was any confusion.

 
Consumers Are Spending, Cash in Checking Accounts Means Alternative Investments Are Not Good Print
Saturday, 19 July 2014 07:50

The Washington Post really has to discover the Commerce Department. It is less than a mile from the WaPo office. Furthermore, if they had access to the Internet, they could get economic data from the Commerce Department in seconds.

If the WaPo knew about the Commerce Department and the data it produces it would not have told readers told readers in a headline:

"Amercians' checking accounts are filling with cash, but they are afraid to spend it."

The Commerce Department's data would have told them that they actually are spending at a fairly rapid clip. The saving rate for the first quarter of 2014 was 4.4 percent. That's somewhat higher than when the wealth effects from the stock and housing bubbles were leading to consumption booms in the late 1990s and the middle of the last decade, but well below the 8-plus percent average for the pre-bubble decades. In other words, there is no doubt that people are spending a lot relative to their incomes.

The accumulation in checking accounts reflects how people opt to save their money. ("Save" just means not spend. From an economic perspective, burning your cash is also a form of saving, since you would not be spending it.) With interest rates on money market funds and other short-term assets very low, it is understandable that people would not bother to transfer their money out of their checking accounts. The same story applies to longer term bonds which also carry a risk of capital losses. And, with price-to-earnings ratios that are higher than normal levels, people can also anticipate lower than normal returns on stock. 

In short, the decision to hold money in checking accounts is easily explained as an asset choice. It is not an alternative to spending, which we know is actually fairly strong.

 
When It Comes to Infrastructure "Vast" Ain't What It Used to Be Print
Saturday, 19 July 2014 07:24

The New York Times doesn't seem to use the term "vast" the way the rest of us would. It told readers that President Obama is:

"stymied by Republican lawmakers who refuse to go along with Mr. Obama’s call for vast new spending on the nation’s infrastructure."

The proposal in question would provide $300 billion in additional spending over the next four years. This is equal to roughly 0.4 percent of GDP over this period and less than 1.8 of projected federal spending.

 

Thanks to Robert Salzberg for calling this one to my attention.

 
Can You Say "Patent Monopoly?" Joe Nocera Can't Print
Friday, 18 July 2014 22:21

Okay, this is really getting pathetic. Yet another piece on drug companies charging hundreds of thousands for drugs (wrongly described as their "cost") which never mentions government granted patent monopolies.

Does the NYT and other media outlets have a ban on discussing patents? Look, we have an incredibly stupid way of financing the research and development of prescription drugs. We don't have to do it this way. Anyone hear of the National Institutes of Health? Just think, if we paid for the research up front these drugs would cost hundreds of dollars instead of hundreds of thousands of dollars. All the information uncovered in their discovery would be immediately available for other researchers to benefit from. And, the drug companies would not have enormous incentive to lie about their safety and effectiveness.

And, we wouldn't have all this absurd handwringing about the tough ethical choices in paying for incredibly expensive drugs. Are reporters and columnists prohibited from raising this question or do they really have so little imagination that they can't even envision an alternative to patent financed research?

 
Sanctions Against Iran Lose the U.S. More than 40 Percent of the Exports Supported by the Export-Import Bank Print
Friday, 18 July 2014 08:26

Regular readers of Beat the Press know that putting numbers in context is one of my main beefs with economic reporting. News stories, especially about government budget items, routinely throw out big numbers that are completely meaningless to almost everyone who reads or hears them. That is not serious reporting. Reporting is about informing your audience. (This is why I use the term "frat boy reporting" to refer to the use of big numbers without context. It conforms to a ritual among reporters, but it does not provide information.) 

To his great credit, Glenn Kessler, who runs the Washington Post's Fact Checker section, does believe in putting numbers in context. He did so in a piece today that examined the claims that sanctions against Iran had cost the United States $175 billion in exports. Kessler pointed out that this number sums estimates of lost exports over 18 years, and therefore it is deceptively large. He points out that this sum amounts to just 0.5 percent of U.S. exports over this period. 

This analysis is very helpful in giving readers a better sense of how much these lost exports mean to the economy. It is also possible to compare the lost exports to another item that has been in the news lately, the Export-Import Bank whose current authorization ends on September 30th. According to the Bank, its loans supported $37.4 billion in exports in 2013. By comparison, the study on the impact of the sanctions calculated that the United States would have exported $15.4 billion worth of goods and services to Iran in the absence of sanctions in 2012 (the last year covered), an amount that is equal to 41.2 percent of the exports supported by the Export-Import Bank.

This comparison should give readers an indication of the relative importance of the sanctions and Ex-Im Bank. Of course, the volume of exports supported by the Ex-Im Bank exaggerates its actual importance since many of these exports would take place even without the Bank's support. For example, if the Bank supports $15 billion in exports from Boeing, then perhaps $10-$12 billion of these exports would still occur even without the Bank's support. Boeing would simply earn a smaller profit on these exports since it would have to pay the market interest rate on its borrowing.

If we say that between 10 percent and 30 percent of the exports supported by the Bank would not occur without access to its loans or guarantees then it added between $3.7 billion and $11.1 billion to U.S. exports in 2013. This is between 24.0 percent and 72.0 percent of the amount of exports lost in the prior year due to the the sanctions against Iran, according to the study. 

 
Did the Banks Have to Commit Fraud? Print
Friday, 18 July 2014 05:23

Floyd Norris has an interesting piece discussing Citigroup's $7 billion settlement for misrepresenting the quality of the mortgages in the mortgage backed securities it marketed in the housing bubble. Norris notes that the bank had consultants who warned that many of the mortgages did not meet its standards and therefore should not have been included the securities.

Towards the end of the piece Norris comments:

"And it may well be true that actions like Citigroup’s were necessary for any bank that wanted to stay in what then appeared to be a highly profitable business. Imagine for a minute what would have happened in 2006 if Citigroup had listened to its consultants and canceled the offerings. To the mortgage companies making the loans, that might have simply marked Citigroup as uncooperative. The business would have gone to less scrupulous competitors."

This raises the question of what purpose is served by this sort of settlement. Undoubtedly Norris' statement is true. However, the market dynamic might be different if this settlement were different.

Based on the information Norris presents here, Citigroup's top management essentially knew that the bank was engaging in large-scale fraud by passing along billions of dollars worth of bad mortgages. If these people were now facing years of prison as a result of criminal prosecution then it may well affect how bank executives think about these situations in the future. While it will always be true that they do not want to turn away business, they would probably rather sacrifice some of their yearly bonus than risk spending a decade of their life behind bars. The fear of prision may even deter less scrupulous competitors. In that case, securitizing fraudulent mortgages might have been a marginal activity of little consequence for the economy.

Citigroup's settlement will not change the tradeoffs from what Citigroup's top management saw in 2006. As a result, in the future bankers are likely to make the same decisions that they did in 2006.

 
<< Start < Prev 1 2 3 4 5 6 7 8 9 10 Next > End >>

Page 4 of 379

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