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Washington Post Has a Reasonable Piece on Supercommittee Print
Friday, 18 November 2011 06:22

This is worth mentioning amidst the near hysteria in the media over the prospect of a failed supercommittee. The Post piece began:

"If the congressional 'supercommittee' cannot agree on a plan to tame the federal debt by next week’s deadline, as now appears likely, here’s what will happen: nothing."

NYT Puts Editorial on Deficit Reduction in News Pages Print
Friday, 18 November 2011 05:44

Taking a cue from the Washington Post, the NYT ran an editorial on the budget deficit in its news pages. It told readers:

"At stake is not simply the country’s fiscal health, but also what remains of the government’s credibility. Without an agreement in sight, investors, business leaders and consumers, already worried about the deepening crisis in Europe, have begun to brace for the possibility of yet another blow to a fragile recovery, this time from Washington."

Is this a fact? The country's fiscal health is at stake? If the NYT reporters had access to the bond yields printed in their own newspaper they would discover that the yield on 10-year Treasury bonds fell by almost 1 percent on Thursday to 1.96 percent.

It seems pretty hard to maintain that investors are terrified about the fiscal health of the U.S. government if they are prepared to lend the government money long-term at less than 2.0 percent interest. They demanded 6.0 percent interest back in 2000 when we had budget surpluses and ostensibly serious people thought we would pay off the government debt in a decade.

This is not a news article. It is an opinion piece, and in fact a bad one. The writers/editors responsible obviously do not like the budget deficit and are trying to scare readers about its risks. This belongs on the opinion pages, not the news section.

NPR Pushes Its Deficit Agenda With Full Force Print
Friday, 18 November 2011 05:15

Morning Edition had a piece warning us that the markets will be hard hit if the supercommittee doesn't reach a deal (sorry, no link yet). It attributed the decline in the stock market in the period around the debt ceiling battle to fears about default, even though bond prices actually rose in this period. Bonds are the asset on which the U.S. government might theoretically default.

So in NPR land, when investors increasingly fear a default on U.S. government bonds, they bid up the price of bonds. However, fears that government bonds will default makes investors less willing to hold stock.

This makes sense as something to say if your agenda is to force Congress to cut programs like Social Security and Medicare. If you're looking for a more coherent explanation, the markets were responding to the prospects of a meltdown of the euro. This raises the prospect of a post-Lehman type freeze up of the financial system. That would be very bad news for the stock market and is the most obvious explanation for movements in the financial markets.

John Cassidy Still Has Not Heard About the Housing Bubble Print
Friday, 18 November 2011 05:04

John Cassidy, the long-time economics writer for the New Yorker, apparently still has not gotten word about the housing bubble: you know, that $8 trillion run-up in house prices that collapsed and caused the financial crisis and the downturn. In a piece telling readers that President Obama has done about as good as could have been expected, he commented:

"And bailing out underwater homeowners on the scale necessary to raise house prices would have been a huge logistical and political challenge."

Of course there was no reason to expect or want house prices to rise. The bubble has largely deflated. Why on earth would we try to re-inflate a housing bubble as a matter of policy? Do we want the stock of Pets.com and other bankrupt loon tune companies to again sell for billions?

It was both inevitable and good that house prices corrected from their bubble peaks. The unforgivably policy mistake was to allow the bubble to grow so large in the first place and to be so unprepared to provide some support (e.g. Right to Rent and serious countercyclical policy) for the victims of this incompetence.

[Thanks to Keane Bhatt.]

George Will Says the 1990 Budget deal Caused the Recession That Started Four Months Earlier Print
Thursday, 17 November 2011 09:19

George Will gave a seriously inaccurate accounting of history in his Washington Post column today. He told readers:

"Sensible people who remember the last grand budget bargain will be dry-eyed about not having another now. Although only 21 of the 242 Republicans in the House and eight of 47 Republicans in the Senate were on Capitol Hill in 1990, everyone there should remember the results of that year’s budget agreement, wherein President George H.W. Bush jettisoned his “no new taxes” pledge: Taxes increased. So did spending. And the deficit. Economic growth decreased."

That's not quite right. The economy actually slid into recession in June of 1990. The budget deal wasn't made until October of 1990. It would take a really really bad deal to slow growth four months before it had been made.

Will also includes a chart that shows projected spending growth with and without a sequester. The point is to imply that there will be large growth in spending regardless even if money is sequestered.

Economists would ordinarily adjust for inflation, which is projected to be around 30 percent in total over the next decade. Perhaps the Post still pays Will the same amount it did in 2001, but wages in general typically rise at least in step with inflation.

Economists would also typically adjust for growth in the economy. If the economy is 30 percent larger (which is the projection), then we would expect to spend roughly 30 percent more, after adjusting for inflation, educating our kids, maintaining and improving our infrastructure, and on other public needs. Apparently, Mr. Will believes that a huge country like the United States does not need to spend any more on education than a small poor country like Haiti. Otherwise he would discuss these sums as shares of GDP, as would any serious analyst.

Unauthorized Copies Are Not "Pirated" Just Because Microsoft Says It Print
Thursday, 17 November 2011 08:18

Someone has to tell the Post that things do not become true just because Microsoft or some other major corporation assert them. This problem pervades an article on efforts by the entertainment industry to force Internet companies to help them police their copyrights.

The article refers to the material in question as being pirated. This is in fact in dispute. In many cases, for example countries where the specific material involved is not protected by national copyright law, it is wrong to claim that the material is "pirated." It is simply unauthorized. The Post should have used this term throughout the piece, since it has certainly has no reason whatsoever to believe that all the material in question will in fact have been posted in violation of copyright.

It would have been helpful to include some economic analysis in this piece. It tells readers that the industry groups claim that they are losing $135 billion a year due to the circulation of unauthorized copies of their work. If this is true, under standard economic assumptions, the loss to consumers from enforcing copyrights would likely be several times larger.

It is also striking that the Post did not use the dichotomy of big government versus the market that it so often throws into its news articles. In this case, we are discussing a law that involves really big government, since it will impose major sanctions on companies that don't in effect act as agents of the government in policing what people post on the web.

Will Cutting Social Security and Medicare Help Congressional Approval Ratings? Print
Thursday, 17 November 2011 08:06

In an article noting that some Republican members of the supercommittee are willing to raise taxes, the Washington Post told readers that Republicans might be willing to make concessions on taxes because they are:

"Party leaders wary of Congress’s dismal approval ratings are loath to appear incapable of deficit reduction."

The packages that have been talked about in the media include cuts to Social Security and Medicare, both of which are likely to be highly unpopular. It is not clear that members of Congress who are concerned about their approval ratings would go this route. However there is little doubt that the Washington Post (in both its editorial and news sections) will warmly praise members of Congress for reaching an agreement as will other major news outlets. 

The NYT Gets the Story Wrong on College Grads Returning Home Print
Thursday, 17 November 2011 06:09

The NYT had an interesting piece discussing the large number of college graduates who have moved back home with their parents because they have been unable to find jobs. While this is an important economic and social trend, some of the numbers are clearly not right.

For example, it cites Mark Zandi as saying that the average new household adds $145,000 in output to the economy. The median household income is approximately $50,000. Most new households have incomes that are well below the median, since they are typically young people living alone. Even if the expenses associated with forming a household cause them to spend beyond their income, it would take an enormous burst of spending and a huge multiplier to get to $145,000. (Remember, this only counts the spending associated with moving into a new apartment or house, not spending on food, transportation, or health care that is largely independent of living in a separate household.) 

The article also cites Zandi as estimating the pent-up demand for new households at 1.1 million which he puts as roughly equal to the number of vacant units for rent or sale. The Census Bureau reports that there are 7.2 million vacant units for sale or rent, with another 7.2 million vacant units being held off the market for a variety of reasons.

The NYT Disappears the Housing Bubble Print
Thursday, 17 November 2011 05:49

Way back in 2008 much of the world sank into recession because housing bubbles in the United States, the UK, Ireland, Spain and elsewhere began to deflate. This ended a boom in construction and caused consumption to plunge as the housing wealth that provided its foundation vanished.

Unfortunately, memories at the NYT are apparently weak. It told readers today:

"To the roster of pain inflicted by the European debt crisis, add this: rising and persistent joblessness among young Britons."

Of course, the European debt crisis is very much secondary in this story. The proximate cause of the high unemployment in the UK is the decision of the government to impose a harsh austerity package involving cuts in spending and higher taxes. This was a decision by the government, it was not in any way a necessary result of the UK's debt burden as the article implies. Financial markets were willing to lend the UK money at very low interest rates.

Also, the cause of the "debt crisis" was the economic collapse that followed the bursting of the housing bubble. Most of the countries now facing serious problems paying their debt had modest budget deficits or even surpluses in the years prior to the collapse of the bubble.

The NYT also appears to be suffering from the millions/billions confusion that is also afflicting NPR. It told readers:

"Reducing youth unemployment by one percentage point could save £2 million, or $3.2 million, by avoiding youth crime, according to research by the Center for Economic Performance, a research concern at the London School of Economics and Political Science."

Presumably the numbers in this research were billions, not millions. If in fact they were millions, the results were too trivial to bother writing up.

Tell NPR: Solyndra's Loan Was $528 MILLION, not Billion Print
Thursday, 17 November 2011 05:01
In its top of the hour news segment Morning Edition mentioned congressional hearings where Secretary of Energy Steven Chu would testify about the loan guarantees for Solyndra, the now bankrupt solar energy firm. The segment said that the guarantees were for $528 billion. In fact, the guarantees were for $528 million. It makes a difference.
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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.