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The NYT Misrepresents Public Attitudes Toward Social Security and Medicare Print
Tuesday, 19 July 2011 04:41

The NYT seriously misrepresented public attitudes toward Social Security and Medicare. It referred to Social Security and Medicare as:

"entitlement programs that represent core values to many liberal voters."

Actually polls routinely show that overwhelming majorities of voters across the political spectrum support Social Security and Medicare. It is not just liberals who care about this program. This is why politicians who want to cut these programs need cover from their political opponents. If they just said they wanted to cut Social Security and Medicare, they would quickly be voted out of office.

Brooks Left Himself Off the List of Budget Deal Villains Print
Tuesday, 19 July 2011 04:19

Surely it was an oversight. In his column today, David Brooks lists all the various groups on the Republican side who made it difficult, if not impossible, to work out a deal with President Obama for large cuts to Social Security, Medicare, and other government programs. For some reason he forgot to include people like himself, ostensible moderates who routinely mislead the public about the budget.

As every budget expert knows, the large budget deficits we currently face are not the result of out of control spending, but rather the downturn caused by the collapse of the housing bubble. If the deficit were smaller right now, we would be seeing lower output and higher unemployment. Nonetheless, Brooks has been happy to contribute to the notion that spending and deficits are out of control.

Every budget expert also knows that the long-term story of exploding deficits is first and foremost a story of runaway private sector health care costs. The problem is not "entitlements." If we paid the same amount per person for our health care as people in other wealthy countries then we would be looking at budget surpluses in the long-term, not deficits. However, Brooks would rather blame entitlements in his columns, helping to convince readers that the problem is demographics.

Brooks also fundamentally misrepresents public sentiment. In today's column he tells readers:

"Opinion polls showed that voters are eager to reduce the federal debt, and they want to do it mostly but not entirely through spending cuts."

This is not really true. Opinion polls show that most voters, including most Republicans, do not want to see Social Security and Medicare cut. They also do not want to see many other large areas of spending, like unemployment insurance, or infrastructure spending, cut.

The public has been convinced by people like David Brooks that there are vast amounts of government money being spent on things like John McCain's Woodstock Museum. The polls indicate that they would like to see these items cut. However, all the arguably wasteful spending items in this category only amount to a small fraction of the budget. Eliminating them will not have a notable impact on the deficit.

NYT Runs Confused Editorial on China and U.S. Debt in Its News Section Print
Monday, 18 July 2011 19:27

The NYT decided that it did not like the efforts of the government to sustain demand and used a news story to describe this policy as "America’s own fiscally dubious habits." While one can argue with the NYT's view that it would be better for the United States to have slower growth and higher unemployment than run a deficit, the more fundamental issue is that such comments are usually reserved for editorial pages.

This is not the only peculiar item in this piece. The article tells readers that China is concerned about losing money on its dollar holdings. This is difficult to believe since it is almost inconceivable that China's government did not expect to lose money on these holdings. There are no other buyers who will be willing to hold dollars at the price that China paid and in fact the dollar already has declined substantially since its peak at the start of the last decade.

Presumably China's government did not mind losing money on its dollar holdings, seeing this loss as the necessary price of maintaining its export market in the United States. In effect, China's government was paying people in the United States to buy its stuff.

The article also includes this bizarre paragraph:

"Most of those reserves are held in dollars, and recycled back to the United States through investments in Treasury bonds and other dollar-denominated securities — even stocks. And while some of China’s foreign exchange reserves are plowed into European and Japanese debt, those bond markets are not big or liquid enough to absorb the bulk of China’s ever-larger foreign holdings."

China is under no obligation to accumulate foreign exchange holdings. It can allow Chinese corporations and citizens to simply sell their foreign exchange holdings on international currency markets. China has accumulated foreign exchange holdings only because it made a conscious decision to accumulate these holdings. This is part of its effort to keep down the value of its currency to sustain its exports. 

Robert Samuelson Wants Us to Follow the Example of a Country With 7 Years of Double-Digit Unemployment Print
Monday, 18 July 2011 05:23
Yes, I am serious. In his column today Samuelson holds up Latvia as the model for the United States to follow. The unemployment rate in Latvia is currently close to 20 percent. According to the latest projections from the IMF, it is still projected to be double-digits by 2016, the end of its projection period. Its 2016 GDP is projected to be 1.5 percent below its 2007 level. If this is a model for success, it's interesting to think of what Samuelson would view as a failure.
Tell Larry Summers, We Can Keep Banks Alive With Conditions Print
Monday, 18 July 2011 05:08

Larry Summers wants Post readers to believe that the policy choices are either letting banks fail like Lehman, and setting off a financial earthquake, or keeping them alive through government bailouts. Actually, there is a third option. Governments can keep the banks alive but tell them that their world will end.

The principle here is so simple that even one of the world's top economists should be able to understand it. Insolvent banks are kept alive by government welfare. Just as the government sets all sorts of conditions for getting monthly welfare checks (which average around $500), it can impose conditions on the banks that are on life support. This can mean giving large capital stakes to the government, voluntary haircuts for creditors (voluntary in the sense that they will get next to nothing if it goes bankrupt), and really really big paycuts for bank executives. This means no more multi-million dollar paychecks.

Congress pretended to impose some of these restrictions with the TARP, but everyone except Washington Post reporters knew at the time that the restrictions were a joke. The story as Summers and the Wall Street boys tell it is that we have no choice but to give the financial industry all of our money. This is not true.

Budget Reporting at the Post: Trees Die for Nothing Print
Monday, 18 July 2011 04:49

Pointless death is always tragic. The Post's budget reporting is a great tragedy for trees everywhere. Today it tells readers about plans to consider a balanced budget amendment to the constitution in Congress. It would have been useful to tell readers something about this amendment, which does not just require a balanced budget. It also restricts spending to 18 percent of GDP, requiring a super-majority of both houses of Congress to exceed this level of spending. This implies a reduction in spending of more than 10 percent going forward (compared with its average over the last decade), even as health care costs and the aging of the population are pushing up spending on programs like Medicare, Medicaid, and Social Security. It would have been useful if the Post had pointed this fact out to readers.

Later the article refers to a proposal by Oklahoma Senator Tom Coburn to cut $9 trillion from the deficit over the next decade. It would have been useful to tell readers that this is approximately equal to 20 percent of projected spending or 4.4 percent of projected GDP over the decade. Few readers are able to assess the meaning of $9 trillion over a decade without some context.

Should We Raise Taxes or Cut Spending: It's All So Complicated Print
Monday, 18 July 2011 04:15
That was the NYT's line in a piece on how best to deal with the deficit. While the piece briefly refers to some of the key research papers on the issue, it would have been worth noting that the U.S. already ranks at the bottom among wealthy countries in the tax share of GDP. Since other countries do manage to sustain healthy economies, with several enjoying comparable or better levels of productivity, it might suggest that raising taxes would not derail the U.S. economy. This fact would have been a useful point to include in this "it's so complicated" piece.
Krugman Also Thinks That an Increase in the Supply of Housing Lowers Its Price Print
Sunday, 17 July 2011 21:57

I was glad to see Paul Krugman's piece this morning in which he reminded readers of the basics of supply and demand. If we slow the foreclosure process, we reduce the supply of housing, thereby raising the price of housing. This is important because there are a lot of people running around this town, with pretensions of being serious, who have been saying that slowing the foreclosure process would lower house prices and hurt the market. 

Maybe I'm idealizing the past, but I would like to think that in the old days, not knowing the basics of supply and demand would have been a fatal blow to a business reporter or a Treasury Secretary. These days, ignorance on this level seems to be a job requirement.

Senate Budget Committee Chair Kent Conrad Only Pays Attention to Economists Who Could Not See an $8 Trillion Housing Bubble Print
Sunday, 17 July 2011 07:31

That's what the Washington Post told readers today in a front page article. It quotes Senator Conrad as saying:

“We cannot as a country fail to deal with the debt threat. .... Every serious economic analysis tells us we’ve reached the danger zone. And just kicking the can down the road? That can’t be. We’re better than that. We’ve got to be better than that.”

This is not true. Many economists, for example Nobel Laureate Paul Krugman, have argued that the country is nowhere near its debt limit. They point to the fact that both the United States and other countries have sustained much higher rates of debt to GDP than the United States does now or is projected to in the near future. For much of the 19th century the UK had a debt to GDP ratio of more than 100 percent. Japan currently has a debt to GDP ratio of more than 200 percent yet can still borrow long-term in financial markets at interest rates of less than 1.5 percent.

They also point to the fact that the markets do not seem concerned about the debt situation of the United States. If the financial markets were concerned about the ability of the U.S. government to pay off its debt then they would not be lending the country money for ten years at interest rates close to 3.0 percent. 

It seems that Mr. Conrad relies exclusively on economists who could not see the $8 trillion housing bubble, the collapse of which devastated the economy. This was obviously true before the collapse of the bubble. The fact that it is still true even after the collapse of the bubble should have been highlighted by the Post. This demonstrates a serious failure of judgment by a person in an important position of power.

It is also worth noting that the Post article bizarrely confuses financial markets with credit rating agencies, telling readers that

"the markets are demanding it [large-scale debt reduction]. The credit rating agency Standard & Poor’s says Washington must agree to reduce the debt by $4 trillion over 10 years to avert a downgrade."

Of course the credit rating agencies often have little to do with the market. They rated hundreds of billions of dollars of subprime mortgage-backed securities as investment grade. The value of these bonds subsequently collapsed, leading to the financial collapse in the fall of 2008. They were paid tens of millions of dollars for these investment-grade ratings. Financial markets have also often ignored the credit rating agencies. For example, Japan can still borrow at extremely low interest rates despite the fact that both Standard and Poor and Moody's downgraded its debt.

The Post should know the difference between the judgment of financial markets and credit rating agencies.

What's New About Politicians Saying They Care More About Principle Than Getting Re-elected? Print
Sunday, 17 July 2011 07:30

In a discussion of Republican opposition to raising the debt ceiling the NYT tells readers:

"This time is different .... some freshmen in both chambers say they worry more about changing the ways of Washington than about getting re-elected."

How is this "different"? Politicians always claim that they care more about their principles than getting re-elected. How many politicians proclaim that they will abandon every principle to get re-elected (even if it is true)? There is little in the description of the freshman Republicans discussed in the article that could not have been applied to hundreds of politicians over the last three decades. If these politicians are really different, the article does not explain how.
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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.