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The Post Checks With Businesses and Finds No Signs of a Double-Dip Print
Monday, 05 September 2011 10:32

Neil Irwin at the Post did some real reporting today. He talked to business executives and reviewed conference calls to determine if there was evidence that they were scaling back their expansion plans. Irwin found considerable nervousness, but little evidence that businesses planned to curtain investment and hiring. This supports the view that the economy's near-term prospects are for a continuation of weak growth, but no double-dip. Of course the current growth rate is not rapid enough to even keep pace with the growth of the labor force, much less bring down the unemployment rate, so this is not exactly good news.

The piece does error in saying that the Fed is out of ammunition. The Fed could take more extreme measures such as targeting a 1.0 percent interest rate for 5-year Treasury bonds or even targeting a higher rate of inflation, as Bernanke had advocated for Japan back when he was still a professor at Princeton. There are serious political obstacles to the Fed adopting such policies, however it is wrong to imply that it does not have options that could provide a stronger boost the economy.

USA Today Is Too Dumb for Words When It Comes to Taxes Print
Sunday, 04 September 2011 22:41

Arghh!!!!!!!! Don't you have to know anything to write for a major newspaper these days? USA Today told readers that:

"That raise actually might not be as good as it looks. The extra money is nice, but it could very well bump you into the next tax bracket, possibly leaving you with less money than you had before the raise."


No, no and 286,000 times no! The tax system brackets give marginal rates. This means that if the raise bumps you into a higher bracket then you pay more taxes only on the income in the higher bracket. Suppose that the tax bracket for income under $200k is 25 percent, and for income over $200k is 33 percent. If you get a raise that pushes your income from $195,000 to $205,000 then you only pay the higher 33 percent tax rate on the $5,000 that is above the $200k threshold not your whole income. Therefore, there is no (as in none, nada, not any) way that getting more money, and being pushed into a higher tax bracket will leave you with less money after taxes.

Don't the writers and editors at USA Today know this?

What Makes the Post Think That the EPA Ozone Rule Would Have "Enormous" Implications for the Economy? Print
Sunday, 04 September 2011 13:46

That is a really strange thing to assert out of the blue. Usually newspapers like to back up such assertions with evidence, but readers would look in vein to find anything in this article to support such an assertion.

In fact, a study by Charles Rivers Associates suggests that the main impact of the regulation would be to hasten the replacement of old polluting power plants. This could help to create jobs in the private sector in the next few years, a period in which all projections show that the economy will still be suffering from substantial unemployment.

In other words, if Obama was interested in an action that he could take unilaterally that would create jobs, supporting the EPA on the ozone restrictions probably would have topped the list. In nixing the regulation, Obama went the job killing route.

Are Businesses Actually Being Held Back By Taxes and Regulation? Print
Sunday, 04 September 2011 11:15

Everyone should read this article from the McClatchy News Service. The business owners they talk to don't see taxes and regulation as the problem.

This just shows what I have been saying along, the Republicans are actually taking part in the Outrageous Claims Game Show. They are trying to find the most ridiculous story about a public policy issue that they get taken seriously in the Washington Post, New York Times and other major news outlets.

In keeping with this spirit for the national debate over economic policy, let me suggest that businesses are actually being held back by a fear of an attack from Mars. They know that their businesses could be destroyed in an instant by hostile aliens, therefore there is no reason to invest or increase hiring. 

Hah, let's see the Republicans top that!

Republicans Call Environmental Regulations "Job Killers," the NYT Doesn't Know What They Think of Environmental Regulations Print
Sunday, 04 September 2011 08:36

The NYT told readers that the Republican Party:

"regards environmental regulations as job killers and a brick wall to economic recovery."

Actually, the NYT has no idea how the Republican Party (presumably it means its leaders) views environmental regulations. It is entirely possible that most leaders are familiar with the research that shows that most environmental regulations have had little or no impact on jobs.

Republican leaders may also know that industry groups have a long history of making outlandish claims about job loss. (For example, the Clean Air Act was supposed to cost around 600,000 jobs. There was zero evidence of job loss after the bill was implemented.) Republicans may opt to echo such claims because they get campaign contributions from the affected industries and they know that the media will never hold them accountable for even the most absurd claims made on behalf of industry groups.

Is Phoenix an Example of Good Housing Policy? Print
Sunday, 04 September 2011 07:54

Ryan Avent criticizes the building restrictions in California's coastal cities in arguing for the benefit of increased population density in cities. He contrasts the high house prices in cities like San Francisco and San Jose with Phoenix, which has few restrictions on building.

Phoenix may not be an ideal city for such a comparison. It was one of the cities that was most caught up in the bubble. Five years ago there would not have been anywhere as near as large a difference between house prices in the coastal cities and Phoenix.


Source: Case-Shiller 20 City Index.


It is not clear that the pattern in Phoenix's housing market is one that many cities would want to emulate.

Recovery In the Housing Market Does Not Mean Higher Prices: Is the Post Still Listening to David Lereah? Print
Saturday, 03 September 2011 08:19

During the days when the housing bubble was inflating to ever more dangerous levels its main source on the housing market was David Lereah, the chief economist at the National Association of Realtors (NAR) and the author of the 2006 best-seller, Why the Real Estate Boom Will Not Bust and How You Can Profit From It. Remarkably, its main source now for the housing market is Lereah's replacement at the NAR, Lawrence Yun.

It seems that the Post still doesn't understand that there was a housing bubble. This means that prices fell from bubble-inflated levels and that they are not coming back. This is just like the NASDAQ which peaked at over 5000 in March of 2000. More than 10 year later it stands at less than half this level.

It's the same story with house prices. They peaked at levels that were more than 70 percent above their long-term trend. They still have not fully returned to their trend levels, having about 10 percent more to decline. There is absolutely zero reason to think that nationwide house prices will rise from current levels.

There continues to be an enormous excess supply of housing which can be most directly demonstrated by the fact that the housing vacancy rate remains near the record high set in 2010. There is nothing in the fundamentals of the supply and demand of the housing market that would indicate that we should expect house prices to rise from their long-term trend. 

This means that when the Post or anyone else refers to "speeding a housing recovery" in a way that implies higher prices, they are trying to tell you that they know nothing about the housing market.

Trade Arithmetic for David Brooks Print
Friday, 02 September 2011 05:02

The NYT has been sponsoring a competition between Thomas Friedman and David Brooks to see who can say more silly things about the economy. Brooks has a couple of good entries in today's column. Brooks told readers that:

"There’s strong evidence to suggest that the rate of technological innovation has been slowing down."

Actually there is zero evidence to support this assertion. The standard measure of technological innovation is productivity growth. This was close to 3.0 percent annually from 1947 to 1973. It fell to about 1.5 percent from 1973 to 1995. It then increased to 2.5 percent in the years since 1995. Brooks might have a point if he were writing in the late 70s or early 80s, but he isn't.

He then tells readers the distressing news that:

"nearly all of the job growth over the past 20 years has been in sectors where American workers don’t have to compete with workers overseas."

This is true and it implies the exact opposite of the sort of genuflection that we get in the rest of Brooks' piece. Suppose that the United States produces both manufactured goods and professional services (e.g. physicians' services, lawyers' services, etc.). Suppose that we prohibit the importation of professional services but promote the importation of manufactured goods with "free-trade" agreements. We would expect that we lose jobs in manufactured goods, although we might continue to generate jobs in professional services.

Let's take it a step further and imagine that we then jack up the value of the dollar because the tough guys at the Treasury believe in a "strong dollar." This will make U.S. manufactured goods even more expensive relative to their foreign competition, causing manufacturing employment to decline even further.

There are two simple remedies to the plunge in employment in manufacturing. One would be to open the professional services to international competition. This means eliminating the barriers that protect highly paid professions (e.g. doctors, dentists, lawyers)  from international competition. This will make the services that they produce (i.e. medical care) much cheaper for the rest of the country, thereby raising real wages.

Increased imports of professional services will also put downward pressure on the value of the dollar, which gets us to the other simple remedy: get the dollar down. The dollar is the main determinant of the relative price of foreign and domestically produced goods. If we want to generate more jobs in sectors that compete internationally then the key is to make our goods relatively less expensive. This is very simple, although the politics of bringing about a lower valued dollar might be somewhat difficult.

So there you have Brooks' entries. He has a tirade about a decline in the rate of innovation that does not exist,  and he fails to notice the impact of trade barriers and an over-valued dollar on trade. This is pretty good in the missing the boat category, but he doesn't hold a candle to Thomas Friedman.

How Many Jobs Does It Take to Keep Pace With the Growth of the Labor Force? Print
Thursday, 01 September 2011 19:55

I have been saying that it takes roughly 90,000 jobs a month to keep pace with the underlying growth rate of the labor force. This means that more rapid growth should lead to declines in the unemployment rate while less rapid growth would lead to increases.

Many other analysts have used higher numbers. For example, in her NYT blognote, Catherine Rampell suggested that the necessary number for keeping pace with the growth of the labor force is 150,000 jobs a month. People have often asked me to explain the difference.

I can't say where others are getting their higher numbers from, but I know where I get my numbers. The Congressional Budget Office projects that the labor force will grow 0.7 percent annually for the next several years. If we go back to the pre-recession level of payroll employment (140 million), this implies 980,000 jobs a year or 82,500 a month.

There is another way to back out a growth number. The Bureau of Labor Statistics estimates that the civilian non-institutionalized population over age 16 increased by 1,781,000 people over the last 12 months. If we assume that 64 percent of this increment to the above age 16 population is employed (roughly the 2000 percent) then this would imply an increase in employment of 1,140,000. 

However, this would overstate payroll employment slightly since roughly 6 percent of the workforce is self-employed. If we assume that 6 percent of the increment is also self-employed, this implies that roughly 1,070,000 payroll jobs are needed to keep pace with the growth of the labor force, or just under 90,000 a month. 

Anyhow, that is how I get my job growth estimate.

Mortgage Servicers Are Still Making It Up Print
Thursday, 01 September 2011 16:55
That's what readers of Kate Berry's articles at American Banker know, why aren't readers of the NYT, WAPO, and the WSJ learning this? Apparently the servicers are still inventing documents and forging signatures just like nothing ever happened.
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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.