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A More Serious Way to Cover Street Protests Print
Wednesday, 28 September 2011 03:45
The NYT had a good piece on the wave of world-wide protests driven by economic policy today. This piece contrasts with a piece last weekend which clearly had the purpose of making the protests against Wall Street look foolish. Reporters would have little problem finding ill-informed inarticulate people at any of the protests mentioned in today's piece. However, these people would not be representative of the protest and their views would not explain the cause of the actions.
 
David Brooks on Stimulus: The Food is Poison and the Portions are So Small! Print
Tuesday, 27 September 2011 17:09

Jonah Gelbach takes me to task for not reading David Brooks column carefully enough. Had I done so, I would have noted this part about President Obama’s latest jobs plan:

“Look at the recent Obama stimulus proposal. You may like it or not, but it’s trivial. It’s simply not significant enough to make a difference, given the size of the global mess.”

After telling us that stimulus does not work, Brooks is now telling us that Obama’s plan is too small to make a difference. [The latest jobs bill actually would provide more stimulus in 2012 than the original stimulus did for either 2009 or 2010.]

 
David Brooks Is Upset at Liberals Who INSIST on Applying Arithmetic to Economics Print
Tuesday, 27 September 2011 03:58

David Brooks is really upset, we may have a lost decade because he is sitting there being right, standing in the middle, and the two extremes who control public debate won't agree with him. How do we know Brooks is right? Well, he is in the middle between the two extremes he just told you about, how could he not be right?

How do we know that the liberals/progressives are wrong? Brooks tells us:

"Many Democrats are predisposed to want more government spending. So they pick up on the one current they think can be cured with more government spending: low consumer demand. Increase government spending and that will pump up consumer spending.

When President Obama’s stimulus package produced insufficient results, they didn’t concede that maybe there are other factors at play, which mitigated the effects. They just called for more government spending. To a man in love with his hammer, every problem requires a nail."

 

Yeah, don't we just hate these Democrats? They are in love with their hammer (government spending) and therefore make everything look like a nail.

Suppose Brooks ever took 10 minutes to read the Obama administration's projections for the stimulus. (It's on the web and can be downloaded for free, so a NYT columnist should have access to it.) The first item in the summary of  Romer-Bernstein report would tell Brooks that:

"A package in the range that the President-Elect has discussed would create between 3-4 million jobs by the end of 2010." 

Let look at that one again:

"A package in the range that the President-Elect has discussed would create between 3-4 million jobs by the end of 2010."

Okay, 3-4 million jobs from a "package in the range that the President-Elect has discussed."

How many jobs did the economy need? By April of 2009, when the first stimulus payments were going out the door, the economy had already lost more than 6.5 million jobs. If we add in normal job growth that we would have seen in a healthy economy, we were already down by more than 8.0 million jobs.

And the economy was still losing jobs at the rate of more than 400,000 jobs a month. By July, we down by almost 10 million jobs from what would have been expected if the economy had sustained a normal pace of job growth from the start of the recession. This is what Brooks would know if ever bothered to look at the numbers.

Now let's look at that quote one more time:

"A package in the range that the President-Elect has discussed would create between 3-4 million jobs by the end of 2010."

President Obama proposed a stimulus package of about $800 billion. He got a package of around $700 billion. (We have to pull out $80 billion for the Alternative Minimum Tax fix. No one, I mean no one, thinks that this fix, which is done every year, had anything to do with stimulus.)

Furthermore, the package was more heavily tilted toward tax cuts than the package that President Obama proposed. Tax cuts have less impact per dollar than spending. David Brooks could find this fact in the Romer-Bernstein paper as well. The appendix tells us that a tax cut equal to 1 percent of GDP will eventually increase GDP by 0.99 percent. By contrast, government spending equal to 1 percent of GDP will increase GDP by 1.57 percent of GDP.

If President Obama got a package that was smaller than what he requested and more tilted towards tax cuts than what he expected, then the impact on growth and jobs would be less than what he expected. He expected that the package he rquested would create 3-4 million jobs, the package he got would be expected to create something less than 3-4 million jobs. And, we know that the economy needed somewhere in the neighborhood of 10 million jobs.

So how is anything about stimulus disproved because a stimulus that could have been expected to create maybe 3 million jobs was not adequate in a downturn where we needed 10 million jobs? There are no tricks here, this is all arithmetic and it is all right there in black and white.

But, Brooks does not want to be bothered by arithmetic. He wants his readers to support his plans for tax reform, for cutting Social Security and Medicare. In other words he wants his readers' support for doing all the the things that David Brooks always wanted to do, but he now says that we absolutely have to do because of an economic crisis caused by the incompetence of the people who always wanted to do these things.

And the people who insist on sticking to arithmetic -- who point out now and said at the time that the stimulus was not large enough -- well to a man in love with his hammer, every problem requires a nail. If arithmetic is nails, Brooks has no hammer.

 

 

 

 
How Did NPR Determine that the Political Deadlock Is Slowing the Economy? Print
Monday, 26 September 2011 05:12
Cokie Roberts told listeners that the political deadlock between President Obama and Congress is slowing the economy [sorry, no link yet]. It is far from clear that this is the case. Consumption as a share of disposable income is actually higher than its post-war average. Investment in equipment and software is nearly back to its pre-recession share of output, which is striking given the large amount of excess capacity in most sectors of the economy. It is not clear what component of GDP that Roberts thinks would be higher without the deadlock.
 
Robert Samuelson is Half Right: China Could Save the World Print
Monday, 26 September 2011 04:34

Robert Samuelson has a piece today arguing that China's intervention is necessary to save the world economy. He of course is right in arguing that China has enough economic strength to save the euro and prevent a downward spiral that would throw the world economy back into recession, as some of us have argued

However, the fact that China may have to play this role is due to the failings of the political leadership in both Europe and the United States. It is essential to remember that this is a crisis of a lack of demand, not supply. For this reason, it is ungodly stupid that so many people are being made to suffer from unemployment and declining living standards.

We know how to get out of this mess, we have known how for 70 years. We just need the government to generate demand. That means spending money. Ideally it would spend money on useful things like education, health care, and infrastructure, but even if it spent money in wasteful ways it would still create jobs and put people to work.

In the 30s we got much of the way back to full employment with the Works Progress Administration and other programs. Much of what was done was useful -- look around, you won't have to go far to find infrastructure built by depression-era programs. However, it took the massive spending associated with World War II to get the economy back to full employment. There is no magic associated with war that makes military spending more effective in creating jobs. The only difference was that the threat to the nation from the Axis powers removed the political obstacles to the necessary spending. 

The same situation applies today. We just need to spend money. That applies to both the United States and the euro zone countries. The problem is that we have more people in political leadership positions who want to be morality cops and lecture about balancing budgets rather than focus on policies that will restore economic growth. This includes the top officials at the European Central Bank, many of the voting members of the Federal Reserve Board's Open Market Committee and much of the political leadership in the euro zone countries, the United Kingdom and of course here.

The reason why the world might need China to come to the rescue is that our economic policy is being designed by people who prefer to impose their warped sense of morality rather than pursue serious economic policy. The real humiliation of turning to China is not that we actually need China, it's that our political leaders are prevented us from saving ourselves.

 
NYT Decides to Mock Wall Street Critics Print
Sunday, 25 September 2011 09:51

The NYT used its news section to mock critics of Wall Street. It presented the comments of some of the people protesting Wall Street. While the people quoted in this article do appear to be confused about the role of the financial industry in the economy, the paper would have no difficulty finding articulate critics of the financial industry.

For example, it could present the views of Nobel prize winning economist Joe Stiglitz. Or, it could present the views of Nobel prize winning economist, and NYT columnist, Paul Krugman. Or could interview Simon Johnson, a former chief economist at the International Monetary Fund.

It is not clear what news the NYT conveyed to its readers by presenting the views of people who do not appear to be knowledgeable about the economy. This would be comparable to presenting the opinions of some of the more extreme people at a Tea Party rally as representative of the business community's arguments for lower taxes. This has not been done in the NYT or elsewhere.

 
Thomas Friedman Shows Again That the Economy Offers Good-Paying Jobs for People Without Skills Print
Saturday, 24 September 2011 22:04

Thomas Friedman made another pitch for a "Grand Bargain" in his column today. (This phrase does indeed appear in capital letters in Friedman's column.) The grand bargain involves cuts to Medicare and Social Security (which appear only as "entitlements" in Friedman's column) in exchange for stimulus.

There is no doubt that the economy needs more stimulus. The economy is losing close to $100 billion a month in lost output as a result of the collapse of the housing bubble. Furthermore, the longer this downturn persists the more people will see their lives ruined. Families are breaking up, houses are being lost and the long-term unemployed may lose the opportunity to ever work again. (All of this could have been prevented if people who are paid to opine on the economy, like Friedman, had been capable of seeing an $8 trillion housing bubble.)

However, it is not clear why there should be any cuts in Medicare and Social Security as a quid pro quo. The cohorts nearing retirement, who would almost certainly be prime victims of Friedman's Grand Bargain, have seen most of their wealth disappear as a result of the collapse of the housing bubble. Why does it make sense to hit them again with cuts to Medicare and Social Security?

It might make more sense to hit Wall Street with a financial speculation tax, which could raise more than $1.5 trillion over the next decade. It might also make more sense to reduce payments to the pharmaceutical industry for drugs purchased through Medicare. This could easily save more than $300 billion over the next decade.

In fact, serious people would be focused on reducing health care costs more generally. We spend more than twice as much per person for our health care as people in Canada, Germany and other wealthy countries with nothing obvious to show for this in terms of outcomes. If we paid the same amount per person for our health care as Canada or Germany, it would save the government close to $6 trillion over the next decade.

People more familiar with economics might be pointing to the possibility of raising large amounts of revenue by taxing financial speculation. They might also focus on fixing our private health care system so that it does not threaten to bankrupt the country. But, Friedman would rather take away Medicare and Social Security for retired workers.

 
The Post's Russia Standard Is Very Different from Its U.S. Standard Print
Saturday, 24 September 2011 05:05

An article on Russia's economy reported on a speech by Russian Prime Minister Vladimir Putin:

"He talked about 'bitter pills' of economic retrenchment. He said wages had outstripped productivity, threatening inflation."

It then added a parenthetical sentence:

"That’s largely because of government policies."

This is a sharp departure from the practice in reporting on U.S. and European economic problems. For example, when reporting on speeches or actions by Federal Reserve Board Chairman Ben Bernanke to counteract the downturn, the Post never points out that the inaction by Mr. Bernanke and other member of the Fed board to stem the growth of the housing bubble is primarily responsible for the downturn.

The same is the case with comments or action by European Central Bank president Jean-Claude Trichet. The Post never points out that his single-minded obsession with a 2.0 percent inflation target, while ignoring the growth of enormous housing bubbles in Ireland, Spain and elsewhere in the euro zone, is responsible for the euro-zone's economic and financial problems.

The Post also never tells readers that all the deficit hawks who it features prominently in both its news and opinion pages were obsessing on the deficit in 2005-2007, even when budget deficits were relatively modest. Their deficit obsession helped to crowd out any public discussion of the housing bubble. The collapse of the bubble both crashed the economy and sent deficits soaring. Yet, the post never includes a parenthetical comment along with quotes from Alice Rivlin, Erskine Bowles or any other prominent deficit hawk pointing out that the current deficits are largely the result of the deficit hawks' dominance of public debate in the pre-crisis period.

In short, it is interesting that the Post felt the need to tell readers that Mr. Putin is largely responsible for the problem that he is complaining about. It does not generally follow this practice.

 
China Could Reduce Inflation and Boost the World Economy at the Same Time Print
Saturday, 24 September 2011 04:32

The NYT reports on evidence that China's economy is slowing, which it suggests is bad news for the world economy, since China has been a main engine of world growth in the last 2 years. The slowdown that China is experiencing is being deliberately engineered by its central bank as a way to combat inflation.

While the article implies that the slowdown makes it less likely that China would raise the value of its currency, which would increase its imports from the rest of the world and reduce its exports, a rise in the value of the yuan would be an obvious way to achieve the desired slowdown. In other words, as an alternative to the measures taken by China's central bank to reduce lending, the bank could simply raise the value of its currency against the dollar and other major currencies. This route would also have the advantage of directly reducing the inflation rate by making the goods China imports from the rest of the world cheaper.

There are reasons that may opt not to go this route, most obviously that the export-oriented industries may have more political power than the industries that will suffer as a result of the central bank's measures to reduce lending, however it is worth pointing out that these are alternative mechanisms for slowing the economy. If China does not raise the value of the yuan, it is not because its economy is slowing, it is because it has opted to take an alternative route for slowing its economy.

 
Krauthammer in Full Rant Mode Print
Friday, 23 September 2011 05:42

President Obama wants to raise the tax rate on the wealthy back to the levels of the Clinton years, still leaving them 10 percentage points lower than the rates set in President Reagan's tax cuts. Charles Krauthammer confronts the threat.

Krauthammer warns of "a $1.5 trillion tsunami of tax hikes." (The tsunami is equal to approximately 0.7 percent of projected GDP or less than half of the Iraq-Afghan war induced increase in military spending.)

He then tells us that Obama's tax plans make him "today’s soak-the-rich, veto-threatening, self-proclaimed class warrior." Krauthammer goes on to call President Obama "a leveler, a committed social democrat, a staunch believer in the redistributionist state."

Along the way he also calls President Obama's adoption of the 1990s Heritage Foundation health care plan "the quasi-nationalization of one-sixth of the economy that is health care" and also denounces a stimulus package that was roughly the same size as the Bush tax cuts as "the largest Keynesian stimulus in recorded history." (I guess Bush didn't think of his tax cuts as "Keynesian.")

Pretty strong stuff here, imagine what Krauthammer would be calling Obama if he proposed to return to Reagan's 50 percent top marginal tax rate.


 
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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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