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Gregory Mankiw's Pop Quiz on the Economy Print
Saturday, 07 May 2011 13:08

In his weekly column in the NYT, Gregory Mankiw gave a three question quiz for economists. His questions are:

1) How long will it take for the economy’s wounds to heal?

2) How long will inflation expectations remain anchored?

3) How long will the bond market trust the United States?

Let's start with questions 2 and 3, because these are easier. 

The answer to question number 2 seems obvious -- as long as there is no inflation. Why should people expect inflation when they are not seeing any? There is no evidence of generalized cost pressure in the economy as all indexes of wages are showing the rate of wage growth remaining pretty much constant. Commodity prices did rise, but this was mostly just a return to pre-recession levels, and it is not clear that these prices are even sticking at their higher level. This question is sort of like asking in the middle of a drought in the desert, when will people expect rain? Presumably when they see clouds on the horizon and not until then.

The answer to question 3 largely follows the answer to question 2. After all, the real threat to those holding U.S. government bonds is inflation, not insolvency, unlike the euro zone countries that Mankiw refers to in his piece. The United States can always print more dollars to meet its obligations. Greece cannot do the same with euros.

Read more...

 

 
The Post Bombards Readers With Misinformation About Jobs and the Economy Print
Saturday, 07 May 2011 07:56

The Post once again showed why it is known as "Fox on 15th Street," running an editorial with the subhead, "tackling the specter of structural unemployment," which essentially offers nothing to address the problem.

The piece got off to a bad start early, telling readers:

Read more...

 

 
Will the Washington Post Ever Tell Readers that the Republican Medicare Privatization Plan Would Add $34 Trillion to the Cost of Buying Health Care in Retirement? Print
Saturday, 07 May 2011 07:43

That is what the projections from the Congressional Budget Office (CBO) imply. And, just to be clear, this is the additional waste that CBO projects would result from running the program through private insurers. The figure does not include roughly $5 trillion in expenses that would be transferred from the government to insurers.

The $34 trillion figure comes to $110,000 for every man, woman, and child in the country. It is almost 7 times the projected Social Security shortfall. While the Post has devoted endless space (in both its news and opinion sections) hyping the need to fix Social Security, it has never once mentioned this much larger cost to the country projected by CBO. Instead its articles on the Republican Medicare plan have been entirely of the he said/she said variety and discussions of its political prospects.

A serious paper would discuss the substance. The Post's readers don't have more time to look into this issue than its reporters.

 
Laura Tyson, of Morgan Stanley's Board of Directors, Urges Going Slow on China Currency Issue Print
Friday, 06 May 2011 15:06

Laura Tyson, the former chair of President Clinton's Council of Economic Advisers, had a column in the NYT today urging patience in addressing the over-valuation of the dollar relative to the Chinese yuan. The heading of the piece identifies Tyson only by her role as a professor at the Haas School of Business at the University of California at Berkeley and her former position in the Clinton administration.

The NYT's identification did not mention that Ms. Tyson is also currently a member of the board of directors of Morgan Stanley. She received almost $350,000 in compensation for her work in this position last year.

This is relevant to the piece because Morgan Stanley has extensive business dealings in China. It is likely that Morgan Stanley would benefit from having the dollar remain high against the Chinese yuan, since this means that its dollar assets will go further in China. In other words, the position being advocated by Ms. Tyson in this piece happens to coincide with the interests of the company on whose board she sits.

It is entirely possible that Ms. Tyson came to her views on the dollar and yuan without any consideration of its impact on Morgan Stanley. However, the NYT should have informed readers of this potential conflict of interest.

As far as the substance, her argument that there is little link between the value of the dollar against the yuan and the U.S. trade deficit with China is weak. When China raised the value of its currency against the dollar in 2005, many other nations followed suit. This led to a substantial decline in the U.S. trade deficit measured as a share of GDP. (The only relevant measure.) It matters little to workers in the United States whether the improvement in the deficit came in trade with China or other countries.

Also the plea for patience must be seen in a context in which tens of millions of workers are unemployed or underemployed with little hope for any improvement in sight. Deficit hawks in both political parties (including many of Ms. Tyson's former colleagues in the Clinton administration) have closed off the option of further fiscal stimulus. The current political context also seems to offer little hope for more expansionary monetary policy.

Given the options, an improvement in the trade balance seems the best hope for a more rapid increase in employment. It is understandable that those struggling to get by in a downturn that resulted from a combination of Wall Street greed and incompetent economic policy may not be as patient as Ms. Tyson. 

 
Huffington Post Teaches NYT, WAPO, NPR and the Rest How to Report the News Print
Friday, 06 May 2011 12:43

Reporters have full time jobs reporting the news. This means that they are supposed to have the time to learn about the issues on which they are reporting. This is in contrast to their audience who generally have full time jobs doing something else.

This means that reporting both sides of an issue does not mean writing "Joe said the X" and "Jane said not X." It means that reporters are supposed to take a few minutes to find out whether or not X is true, and then share this information with readers.

This issue comes up with regard to Republican plans to "drill here, drill now" in response to the recent run up in gas prices. The Republicans claim that if we just allowed the oil companies to drill everywhere they want, it would get the price of gas back down to an acceptable level. Environmentalists and some Democrats have argued that given the size of the world oil market, any additional drilling can only have a minimal impact on oil prices.

The NYT, WAPO, and NPR have all reported this one as a he said/she said leaving it to their audience to determine who is right. By contrast, the Huffington Post did a bit of homework. They talked to some experts in the field. These experts told their audience that even if we make very generous assumptions about the potential increase in domestic oil production it will take at least 5 years to notably increase output and that it would have minimal impact on gas prices.

This is the way a real news organization deals with issues.

 
How Many Workers Should Lose Their Jobs To Avoid Upsetting the Dainty Financial Markets? Print
Friday, 06 May 2011 07:05

This is the question that readers of a Washington Post article on the administration's efforts to lower the value of the dollar should be asking. The article tells readers that the Obama administration and Federal Reserve Board Chairman Ben Bernanke probably both want a lower dollar to help correct the U.S. trade imbalance and create jobs, but that they can't say so openly for fear of upsetting financial markets.

Since the delay in lowering the dollar to a more sustainable level is causing millions of workers to be unemployed, it would be worth asking how many workers should be forced to suffer unemployment for long, just to keep the financial markets from being troubled. Economists believe that in the long-run financial markets respond to the fundamentals in the economy, so the worst that is likely to result from a bit of concern is a period of excessive volatility in the financial markets. This can lead to some traders losing or gaining large amounts of money; the long-term impact on the economy is likely to be trivial.

It is a very damning statement about the Fed and the administration if, as this article implies, they care so much about financial markets that they are forcing millions of workers to be out of work just to avoid a short period of uncertainty.

 
When It Comes to Labor Shortages, WSJ Tells Readers Not to Believe What You Can See With Your Own Two Eyes Print
Friday, 06 May 2011 05:20

The Wall Street Journal ran a piece about how manufacturers are finding it increasingly difficult to find the skilled workers that they need. The problem is that their current workforce is nearing retirement while relatively few younger workers have the necessary skills. The employers featured in the article even talk about how they have been raising wages to get and keep workers.

Of course the wages discussed in the article are not the sort that would sound high to most WSJ readers. According to the article, one of the manufacturers starts workers at full-time jobs paying between $25,000 and $50,000 a year. This is probably a somewhat lower wage than WSJ readers envision for their children.

More importantly, the charts accompanying the article do not show manufacturing wages rising rapidly. In fact, the chart actually shows that average nominal compensation in manufacturing has been flat or even declining slightly. This indicates that real hourly compensation has been falling over the last few years. This means that if the employers discussed in this article really are raising pay, then they are the exceptions. Most employers in the manufacturing sector are cutting pay in real terms, indicating that there is an excess supply of labor, not a shortage.

 
Does the Plunge In Oil Prices Mean We Have to Worry About Deflation? Print
Friday, 06 May 2011 05:02

In policy circles the worst thing you can do to a leading expert is to hold him/her accountable for their views. Remember all those folks who thought the economy and the housing market were just fine in 2006? They're all still there, using their expertise to opine on and guide economic policy. It is considered excessively cruel to point out that these experts somehow could not see the biggest downturn since the Great Depression until we were in the middle of it.

Anyhow, there is a subset of policy types who had been complaining about the rising price of oil and other commodities as evidence of runaway inflation. This in turn was usually attributed to the Fed's quantitative easing policy.

Now that these prices have fallen sharply, these experts presumably fear deflation. Hopefully we will be reading articles in coming days in which these experts insist on the need for more aggressive monetary policy in order to protect the economy against this threat.

 
David Brooks Shows How Far We Have Gone from the Founding Fathers: It Used to be That Columnists Had to Know What They Were Talking About Print
Thursday, 05 May 2011 21:47

David Brooks told readers that:

"Over the past months, there has been some progress in getting Americans to accept the need for self-restraint."

This should have hundreds of millions asking who needs "self-restraint?" Does Brooks thinks that the 14 million unemployed need more self-restraint? Do the 8 million people who want full time work but who can only find part-time employment need self-restraint? Do the millions of people who are facing the loss of their home need more self-restraint?

Brooks isn't very clear on who he thinks needs to restrain themselves but he praises Senator Alan Simpson, Representative Paul Ryan and President Obama for helping to lecture us on this need. Those familiar with the basic economic data know that the richest 1 percent have used their control of the political process to hugely increase their share of national income over the last three decades. The bottom 90 percent has seen little gain from economic growth over this period. Of course Representative Ryan wants to give more tax breaks to the richest 1 percent, so he doesn't seem to be preaching self-restraint to those who have been showing the least in recent years.

If Brooks' concern is making the welfare state sustainable, then he should be talking about fixing the health care system. It is easy to show that if per person health care costs in the United States were comparable to any other wealthy country then we would be projecting huge budget surpluses, not deficits.

If Brooks bothered to take a few minutes to study the issues he writes about then he would know this. Fortunately for him, he has job for which this skill is not required.

Brooks also claims that there is an inherent tension between economic dynamism and economic security, telling readers:

"Republicans still mostly talk about incentives for growth, and Democrats still mostly talk about economic security."

Actually many Democrats have been actively talking about more stimulatory fiscal policy, monetary policy and currency policy (i.e. a lower valued dollar). All of these policies would boost growth. It is remarkable that Brooks is apparently unaware of the large number of Democrats, including several of his colleagues at the New York Times, who have been vigorously pushing these positions. 

 
The Post on Government Health Care Spending Fails to Note that Other Countries Have Public Systems Print
Thursday, 05 May 2011 09:34

Those who thought that the Washington Post (a.k.a. Fox on 15th Street) couldn't get any worse, have just been proven wrong yet again. The Post ran a little primer telling readers about Medicare, Medicaid, and Social Security.

The Post tells readers:

"a GAO report found that total government health-care spending in the United States is somewhere in the middle. In the United States, spending on public health was 6.9 percent of gross domestic product in 2005, while it was 8.9 percent in France, 8.2 percent in Germany and 7.2 percent in the United Kingdom. On the lower end of the spectrum, Australia spent 6.4 percent of GDP on health care and Canada spent 6.9 percent. Some of the countries that spend more have had a demographic shift to an older population sooner than the United States."

 

Okay, boys and girls, can anyone see the problem with this discussion?

That's right! All the other countries included in this discussion have public health care systems. The figures cited for public health care spending comprise the bulk of their national spending on health care. Only in the United States do we have a large private health care sector that spends roughly the same amount as the public sector.

This means that rather being in the middle of the pack, as this discussion implies, we are way over the top. To pay for most of the health care needs of our seniors and our poor, our government pays almost as much Germany, Canada, and the U.K. do to provide for the health care needs of their entire population.

Of course this point should have been central to this whole primer. The reason that Medicare, Medicaid, and Social Security are projected to "usurp much of the revenue from federal taxes," is that health care costs in the United States are out of control. If the U.S. paid the same amount per person for health care as any of these other countries it would be looking at huge budget surpluses in the long-term, not deficits.

There is one other especially striking item in this piece. It told readers:

"The last major change to Social Security happened in 1984, when President Ronald Reagan raised the Social Security tax rate (the percentage of income under the maximum taxable earnings limit that is subject to tax) and the full retirement age from 65 to 67."

Umm, the year was 1983, not 1984. This primer is not ready for prime time.

 
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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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