CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press

Beat the Press

 facebook_logo  Subscribe by E-mail  

Is There Anyone Other than the NYT Who Wants to See a Lehman-Type Collapse In Europe? Print
Thursday, 06 October 2011 04:39

In a front page news analysis the NYT told readers that:

"but these days the problem for Europe may be that it has not had — and may not have — its own Lehman Brothers, at least in the sense that Lehman shocked Americans to take divisive and expensive steps to repair the damage."

There is no one cited in the article who says anything like this. In the wake of the Lehman collapse, the economy lost more than 700,000 jobs a month over the next nine months. While much of this job loss was probably an inevitably result of the bursting of the housing bubble, the financial freeze up associated with Lehman's collapse almost certainly worsened the situation. It is difficult to see how Europe or the world economy as a whole would benefit from the same sort of financial freeze-up.

It is also worth noting that, contrary to assertions in the article, the Fed began its special lending facilities long before the Lehman collapse. It expanded these facilities in response to the collapse and Congress did authorize the TARP, but it difficult to see how the economy on net ended up better off as a result of the crisis that followed the Lehman collapse.

Of course there are scenarios that could be positive in Europe or could have been positive in the U.S. For example, if the government had used the bankruptcies that would have resulted from letting the market run its course to restructure the financial system, then the country might have a much more efficient industry. Goldman Sachs, Morgan Stanley, Citigroup and Bank of America all would have been bankrupt, giving the government an opportunity to reestablish these banks as a set of smaller financial institutions that were more focused on serving the productive economy.

This is a possible, but not likely outcome from a collapse in Europe. Just as is the case here, the financial industry holds enormous power. It is likely that they would be able to garner the government assistance to keep their current structures largely intact.

British Prime Minister David Cameron Doesn't Know Economics, Where Is the Ridicule? Print
Wednesday, 05 October 2011 13:32

The NYT reported that British Prime Minister David Cameron was prepared to give a speech in which he would call on households and businesses to pay down their debt rather than spend. This amounts to a gaffe of enormous proportions. It implies that the Prime Minister overseeing one of the world's largest economies has no clue about economics. If households and businesses responded to the prime minister's request, it would further reduce demand leading to a second recession and a further rise in unemployment.

While the NYT piece did note that Cameron changed his comments in response to complaints from businesses, it did not go on to quiz his staff in the same way that the media have followed up on other alleged gaffes by political figures. For example, in the weeks following the disclosure of then Senator Obama's comments about working class Pennsylvanians turning to guns and religion out of frustration and bitterness, news stories were filled with accounts from Obama's press people and others about his remarks. 

Certainly the magnitude of Cameron's gaffe dwarfs the guns and religion statement from Obama. The media should be pressing his aides to determine whether Mr. Cameron is really as confused about the economy as the text of his original speech implied. People in both the UK and the rest of the world would undoubtedly like to know.


Why Do Trade Agreements Have to be "Free?" Print
Tuesday, 04 October 2011 05:13

Why can't the NYT just call the trade agreements being sent to the senate "trade" agreements? Why does it feel the need to mislead readers in the headline and several times in the article itself by calling them "free trade" agreements?

These deals do not free all trade. There will still be plenty of protectionist barriers left in place that will make it difficult for doctors, lawyers and other professionals from these countries from working in the United States. Furthermore the deals actually increase protectionism in the areas of patents and copyrights, which is one of their main purposes.

Presumably the NYT approves of these deals which is why it blesses them as "free trade" agreements, but this sort of editorializing should be left to the opinion pages.

The IMF, ECB, and EC are Prepared to Wreck the World Economy to Squeeze a Few Extra Dollars Out of Greece Print
Tuesday, 04 October 2011 04:59

The NYT piece on the failure of Greece to meet its deficit targets and the response by the IMF, the European Central Bank, and the European Commission should have included a comment from someone pointing out that these institutions are jeopardizing the growth prospects for the world economy in order to try to squeeze some additional money out of Greece for its creditors.

The risk of a Greek default is leading to soaring interest rates on the debt of several euro zone countries and creates a real risk of another Lehman-type financial freeze-up. This would virtually guarantee a double-dip recession in both the euro-zone and the United States.

This fact should have been included in the article. Given that the current economic crisis is in large part the result of the incompetence of these institutions, the public might not appreciate the fact that they are risking further damage to the world economy in order to squeeze a country that is already suffering enormous economic pain.

How Did the NYT Determine that the U.S. Has a Budget Crisis? Print
Tuesday, 04 October 2011 04:45
The paper doesn't tell its readers how it made the determination that the country faces a budget crisis, but this did not prevent it from telling readers in both a headline and an article's first sentence that there is a budget crisis. The NYT's assessment certainly differs sharply from the assessment of financial markets in this respect. They are willing to lend the U.S. government trillions of dollars at interest rates of less than 2.0 percent on 10-year bonds. If the financial markets shared the assessment of the NYT editors they would be demanding far higher interest on government debt.
The ECB and Friends Are Responsible for Greece Not Meeting Their Conditions Print
Monday, 03 October 2011 05:12

It would have been helpful if the NYT had made this point in an article that discussed the failure of Greece to meet deficit targets set by the "troika," the European Central Bank (ECB), the IMF, and the European Commission. The austerity conditions that the troika imposed on Greece and its trading partners coupled with excessively restrictive monetary policy by the ECB has slowed growth within Greece. 

While the article notes that the slower than expected growth is the cause of Greece failing to meet the targets set by the troika, it does not explain that the troika itself is largely responsible for the slower than expected growth. While the economic officials in key positions in the troika have a long track record of dismal failure (hence the current downturn), top officials in these bureaucracies are rarely punished for poor performance. As a result, they can keep repeating the same mistakes more or less indefinitely.    

Robert Samuelson's Con Job Print
Monday, 03 October 2011 04:40

Robert Samuelson devoted his column today to decrying the lack of confidence in the U.S. economy. While confidence is indeed low, this largely reflects the prolonged downturn. Contrary to what Samuelson suggests, there is nothing surprising about the lack of confidence given the most prolonged period of high unemployment since the Great Depression.

In fact, given the weakness of demand, consumption and investment are both surprisingly high. The saving rate is hovering near 5.0 percent, well below the pre-bubble average of more than 8.0 percent, suggesting that consumers are more willing to spend relative to their income than was the case in the 50s, 60s, 70s, and 80s. The share of GDP devoted to investment in equipment and software is almost back to its pre-recession level.

The obvious problem in the economy, including the low rate of start-ups that is troubling Samuelson, is a lack of demand. This is best met by government stimulus, since government spending puts money in people's pockets and, contrary to what many politicians assert, people do work for the government, which means that the government can create jobs. If the government created enough demand in the economy, as it did during World War II, there is no reason to believe that firms would not invest more and that more start-ups would come into existence. 

NPR Continues Its Campaign Against Social Security by Telling Listeners That We Don't Have Enough People Print
Monday, 03 October 2011 04:32

Morning Edition had a segment with journalist Phillip Longman who told listeners that the world was suffering from having too few children [sorry, no link yet]. Longman wrongly said that European countries now have large budget deficits because they have too few workers and large pension obligations.

This is not true. European countries have large budget deficits because their economies collapsed as a result of the collapse of housing bubbles in countries like Spain, the United Kingdom, and Ireland. This can be easily shown by the fact that almost all of these countries had moderate budget deficits or surpluses just a few years ago, when their demographics were almost exactly the same.

The prospect of stagnant or declining populations actually offers many benefits for densely populated countries. It means that there will be less strain on infrastructure and natural resources (a larger percent of the population can have beachfront property). It also means that it will be easier for to meet targets on greenhouse gas emissions.

It would be useful if Morning Edition tried to make sure that the people it brings on to speak on economic issues at least had some knowledge of the economy.

NPR Doesn't Know That China Could Slow Growth by Raising the Value of Its Currency Print
Monday, 03 October 2011 04:28

That is what listeners to a Morning Edition segment would conclude [sorry, no link yet]. The piece told listeners that China's efforts to slow its economy would be bad news for the rest of the world since it would reduce the growth of China as an export market for other countries.

However China can actually slow its economy by replacing domestically produced goods with imports. This can be done by raising the value of the yuan against other currencies. This measure would also have the advantage of combating inflation by making lower cost imported good available.

The Washington Post Is Unhappy About Plans to Reduce the Value of the Dollar Print
Monday, 03 October 2011 04:08

Those who know economics recognize the trade deficit is the basic imbalance facing the economy today. If the U.S had balanced trade it would create in the neighborhood of 4 million manufacturing jobs.

Also, by getting trade closer to balance, the country would no longer be a net borrower. By definition, countries that are net borrowers must either have budget deficits or negative private savings, as the U.S. did at the peak of the housing bubble.

This is why it is so peculiar that the Washington Post is so strongly opposed to measures to reduce the value of the dollar against the yuan. The Post constantly rants about the budget deficit being too large. However, unless the trade deficit is reduced, then the Post's dream of lower budget deficits could only translate into reduce private sector savings.

This means that people would be borrowing and accumulating nothing to support themselves in retirement. That is the implication of the Post's position, there is no way around this.

The Post's argument that the value of the yuan won't affect trade much does not hold water. Even if many of the jobs that are already lost may not come back, a higher yuan would sharply reduce the rate at which we are losing new jobs.

Furthermore, other countries would likely raise the value of their currencies against the dollar, following the yuan. This is what happened when China raised the value of the yuan in 2005. This will lead to an improved trade balance with other countries as well. Relative prices are by far the most important factor in determining trade flows. These are in turn a direct function of the exchange rate.

The Post also mentions pending trade agreements as an alternative mechanism for balancing trade. (It inaccurately described these deals as "free-trade" agreements. These agreements increase many forms of protectionism, like patents and copyrights. The Post is misleading its readers to back its position by calling these pacts "free-trade" agreements.) In fact, the sorts of trade agreements now being considered have generally been associated with larger trade deficits, not smaller trade deficits. 

<< Start < Prev 281 282 283 284 285 286 287 288 289 290 Next > End >>

Page 282 of 426

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.