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Why Is It So Hard to Understand that the Fiscal Commission Never Issued a Report Print
Monday, 27 June 2011 20:38

The rules under which President Obama's fiscal commission were formed are very clear. They required that any report must be approved by a vote of 14 of the 18 members. The rules also required that the vote take place by December 1, the date that the commission went out of existence.

As it turned out, there was no plan approved by 14 of the 18 commissioners. Nor was there a formal vote taken by the members of the commission before December 1, although 11 of the 18 members did indicate support for a plan from the co-chairs Erskine Bowles and Alan Simpson on December 2, the day after the commission went out of existence.

This means that there is no commission report. We can assume that when reporters at the Hill or other publications refer to the Bowles-Simpson report as the commission's report that they are telling us that they like the report. However they are not conveying information accurately to readers.

NPR Missed the Recession Print
Monday, 27 June 2011 05:13

In a segment of Morning Edition where Scott Horsley discussed the budget negotiations, he told listeners that we face a large debt because Congress likes to spend money. This is like saying that firefighters spray water on buildings because they like to spray water from hoses.

The proximate cause of the large budget deficit, as every budget analyst knows, is the economic downturn caused by the collapse of the housing bubble. If Congress opted not to spend money, then the economy would have sunk further and the unemployment rate would be considerably higher today. 

There are many people who make up stories about out of control government spending. This is not true and NPR's reporters should know this fact.

The Washington Post Still Has Not Heard About the Housing Bubble Print
Monday, 27 June 2011 04:53

A Post article on the possible effects of lowering of the loan limit for Fannie and Freddie backed mortgages said this could hurt the "faltering" housing market, pushing prices down further. Of course the current price decline is simply the deflation of a bubble. Nationwide prices still have to fall by around 10 percent to return to their trend level.

The piece is also somewhat confused on the effect that lowering the limit would have. It tells readers that:

"The loan limit [the new limit of $625,500]— down from $729,750 — would have affected about 40 percent of mortgages made in Great Falls if it were in place last year and more than 20 percent of the loans made in expensive areas such as Bethesda, McLean, Chevy Chase, Dunn Loring, Potomac, Fairfax Station and Upper Northwest Washington, according to a Washington Post analysis of data from LPS Applied Analytics."

Many homebuyers would take advantage of the opportunity to borrow up to the limit when buying a new house because they can get a low interest rate. If the limit were lowered, many of these upper income homebuyers would simply arrange to put up a larger downpayment. In other words, the limit is likely a major factor determining the size of the mortgage.

NYT Does Its Homework on Shale Gas [corrected] Print
Monday, 27 June 2011 04:24

The NYT has an excellent piece today presenting evidence that the Energy Information Agency has been presenting an overly optimistic picture of potential shale oil reserves as a result of relying on industry claims instead of independent analysis.

It also has a piece on an rule change by the Securities and Exchange Commission that allowed gas companies to claim much larger reserves. Yesterday it ran a piece suggesting (based on internal e-mails and discussions with company insiders) that these companies were inflating their reserves in press releases and other company documents.

This is what newspapers are supposed to do.

Doctors Say, Just Give Us Government Money and Stop Asking Questions Print
Sunday, 26 June 2011 21:18

The NYT tells us that doctors are really upset that the government is trying to find out how easy it is for patients to get access to their services. The article interviews several doctors who expressed anger that the government plans to have testers call for appointments without identifying themselves as testers. The purpose is to determine how difficult it is for people with various types of insurance (e.g. Medicare and Medicaid) to get appointments.

This is a standard practice for researchers. In fact, it would be outrageous if the government were spending close to $1 trillion a year on various health insurance programs without knowing how effective they were in providing care.

While the NYT did interview some people connected with the government testing program, it should have interviewed some independent experts who could have reaped ridicule on the doctors. Of course no one forces the doctors to practice medicine in the United States. If they find the government too intrusive, as several complained, then they have the option to work in Canada, the United Kingdom or any other wealthy country and earn about half as much.

President Obama Uses His Travel for Political Purposes and the Washington Post Is Shocked! Print
Sunday, 26 June 2011 09:45

The Washington Post had a clean out the refrigerator front page piece taking pot shots at President Obama for favoring a certain number of politically connected firms in the clean energy business and also using his travel for political purposes.

There are two distinct issues here. Is the president using his travel for political purposes? Do fish swim in the ocean?

Come on folks, this is not serious. There is no front page story in presidents using their travel for political ends, there's no story period. This is always done. In fact, if it turned out that President Obama's travel did not seem to fit his political agenda, that would have been an appropriate front page story.

There is a separate issue as to whether the Obama administration has circumvented normal procedures to give government support to political allies. This is an issue and possibly even a front page story, however the piece is too scattered to give a clear sense of the evidence on this point.

The Post would be well-advised to leave the nonsense about political travel in the frig and focus on the allegations of corruption in the loan guarantee process. If there is a clear case here, then present it to your readers.

Can't The NYT Find an Economist Who Knows Anything About the Economy? Print
Friday, 24 June 2011 22:42

That is what readers are asking after seeing an NYT article in which several economists expressed surprise over the continuing weakness of the economy. What is surprising in this picture? What sector did they expect to give a boost to the economy that fell short?

The special cues to the ignorance of the economists interviewed is the seeming surprise at the continuing drop in house prices. Do these economists still not know about the housing bubble? It almost crashed the financial system and is the cause of the current downturn. Can you actually get paid to be an economist and still not know about the bubble?

Of course if you knew about the bubble then you are not surprised that house prices are continuing to fall. Prices have to fall by about 10 percent in real terms to get back to their long-term trend. This means that the decline in house prices over the last half year should have been entirely predictable.

The economists cited in this article also seemed surprised that consumers aren't spending more. Economists who know about the economy are the surprised that consumers are still spending as much as they are. The savings rate plummetted in the 90s and 00s as a result of the wealth created by the stock and housing bubbles. This is the result of the "wealth effect" whereby more wealth in assets leads to more consumption and less savings. This effect has been a central part of economics for more than 70 years.

With the housing bubble largely deflated, and the ephermal wealth that it created largely gone, savings rates are rising back to their historic level. If anything, the surprise is why consumption is so high, not why it is so low.



Source: Bureau of Economic Analysis. (Click here for a larger version.)


(Sorry about the mess of a graph -- my Microsoft program was updated and in keeping with their proud tradition, the new version is much clumsier than then the old one.)

Fox on 15th Editorializes In Its News Section Again Print
Friday, 24 June 2011 05:11

It is remarkable how the Washington Post (a.k.a. Fox on 15th) cannot write a story on the budget deficit without feeling the need to editorialize. Today's piece referred to the "the swollen national debt."

Real newspapers would have just called it "the national debt." However, the Post could not resist the opportunity to push their editorial line pushing the need for deficit reduction.

NPR Talks About Manufacturing's Prospects Without Mentioning Tariff on U.S. Exports Print
Friday, 24 June 2011 04:44

Actually, what NPR did not mention was the value of the dollar, however an over-valued dollar has the same effect on U.S. exports as a tax on exports. In other words, if the dollar is 15 percent over-valued, this is equivalent to imposing a 15 percent tax on all the goods exported from the country, since it makes our goods roughly 15 percent more expensive to people living in other countries. Similarly, if the dollar is over-valued by 15 percent then it is equivalent to subsidizing imports by 15 percent.

When the United States has imposed tariffs of this magnitude on imports, for example President Bush's temporary tax on imported steel in 2001, it has received a huge amount of attention from the media. It is therefore remarkable that a piece devoted to the prospects of manufacturing never mentions the dollar and the likelihood that it is substantially over-valued.

This piece also points to productivity growth as one of the main factors contributing to the reduction in the share of employment in manufacturing. It is important to realize that productivity growth in manufacturing would only lead to a reduced employment share insofar as it has exceeded the rate of productivity growth elsewhere in the economy.

This has in fact been the case. But the gap between productivity growth in manufacturing and the rest of the economy would explain a much smaller drop in the manufacturing share of total employment than the absolute level of productivity growth. Much more of the drop in the manufacturing share of employment is attributable to import competition and the trade deficit. If the U.S. had balanced trade, it would increase manufacturing employment by more than 40 percent, creating more than 4 million new jobs in manufacturing.

The NYT Is Confused About Housing in the UK Print
Friday, 24 June 2011 04:33

The NYT ran an article noting that homeownership rates in the UK are dropping which it attributed to the fact that, "disposable income has shrunk and loan requirements have toughened."

However somewhat later in the article it notes that:

"One reason homeownership remains attractive in Britain is because property values dropped less drastically than in the United States, in part because of a shortage in housing. Prices in some large cities, including London, have even increased recently."

If there really is a shortage of housing, then the tighter loan requirements, which are a main focus of the article, have nothing to do with the declining rates of homeownership. If loan requirements had remained lax, and nothing had changed to the supply of housing, then it would simply mean that prices would rise further and more people would be priced out of the market due to high house prices rather than tough loan conditions.

The ability of people in the UK to be homeowners is limited by the supply of housing. If there is really inadequate supply, as this article contends, then the terms of mortgage loans and even levels of disposable income will not affect homeownership rates.

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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.