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Romney Staffs His Campaign With Economists Who Could Not See an $8 Trillion Housing Bubble Print
Saturday, 16 July 2011 07:49

That's right, the Washington Post told readers that the front-runner for the Republican presidential nomination is relying on two economists, Greg Mankiw and Glenn Hubbard, who completely missed the $8 trillion housing bubble whose collapse wrecked the economy. Unfortunately the Post neglected to mention this fact to readers.

Since Romney is making his ability to manage the economy the centerpiece of his campaign it would have been worth noting that his two top economic advisers were unable to see the largest asset bubble in the history of the world. This might raise some questions about Mr. Romney's competence.

The Ratings Agencies Who Rated Subprime MBS Investment Grade are Trying to Dictate Budget Policy Print
Saturday, 16 July 2011 06:32

The Washington Post told readers that the credit rating agencies are threatening the United States with a downgrade if there is not a deal to reduce projected deficits in the near future. The article rightly pointed out that these credit rating agencies rated hundreds of billions of dollars' worth of subprime mortgage-backed securities as investment grade, although it attributes this inaccurate rate to misjudgment rather than deliberate corruption. Since the credit rating agencies received tens of millions of dollars for their ratings, and people within the organizations did raise questions about the mortgage-backed securities to which they were assigning investment-grade ratings, it is difficult to see how corruption can be ruled out as a possibility.

It also would have been worth mentioning that markets have not always responded to the downgrading by the rating agencies. In particular, Japan continues to be able to borrow in capital markets at extremely low interest rates (1.1 percent on 10-year bonds) in spite of having been downgraded by both major credit rating agencies.

Also, it would have been helpful if the Post had more clearly sourced the article. Specifically, the article tells readers:

"On Thursday night, S&P insisted that Washington must conclude an agreement to cut the deficit by $4 trillion or face the consequences of a potential downgrade."

The source of this threat is not clearly identified.

NYT Tells Readers that Governors are Fools or Liars Print
Saturday, 16 July 2011 06:10

Okay, the article by Michael Cooper didn't use exactly those words, but it did say that:

"Governors from around the country — including Christine O. Gregoire of Washington, a Democrat, and Scott Walker of Wisconsin, a Republican — said that employers in their states had been reluctant to hire new workers because of the uncertainty [over the debt ceiling]."

If there are employers who are seeing enough demand for labor that they would ordinarily be hiring new workers, but are not doing so because of uncertainty stemming from the debt ceiling, then we would expect that they are working their existing workforce additional hours. This one is easy to check.

Here's what average weekly hours looks like according to the Bureau of Labor Statistics.


Source: Bureau of Labor Statistics.


See the jump in hours due to the uncertainty? That's right, it's not there. This means Governors Gregoire and Walker and the rest either do not have a clue about what is going in the labor markets in their state or they are making things up. This is one that readers will have to judge for themselves.

The NYT's False Symmetry Between Republicans and Democrats Print
Friday, 15 July 2011 04:25

The NYT had an article on budget negotiations in which it implied a false symmetry on key issues in the debate:

"On Thursday, the leaders grappled with the most difficult issues politically for each party: cuts to Medicare and Medicaid, entitlement programs long defended by Democrats; and new revenues from the tax code, anathema to Republicans, who say they will not vote for anything resembling a tax increase."

This symmetry is misplaced because the Democrats' base actually wants to see the rich pay more in taxes. By contrast, the Republicans' base actually strongly supports Medicare and to a lesser extent Medicaid. The Democrats need the Republicans to get a tax increase passed through Congress. The Republicans need the Democrats to give them cover for cuts that are unpopular across the board.

Charles Krauthammer Doesn't Know The Deficit Commission Did Not Issue a Report Print
Friday, 15 July 2011 05:08
Who could blame him? After all, it is hard to get news in Washington, D.C. Yes, yet again someone has referred to a deficit commission report that does not exist. Krauthammer is referring to the report of the commission's co-chairs, Morgan Stanley director Erskine Bowles and former Wyoming senator Alan Simpson. The commission did not vote on this package by the President's deadline and the co-chairs report would not have gotten the necessary majority in any case. Therefore there is no commission report. This one shouldn't be hard, even for people who write columns for the Washington Post.
Credit Rating Agencies that Were Paid to Rate Subprime MBS as Investment Grade Threated to Downgrade U.S. Debt Print
Friday, 15 July 2011 04:33

Forgiveness is wonderful, but forgetfulness has no place in policy debates. The idea that the Moody's and Standard and Poors should be seen as impartial arbiters of the creditworthiness of the U.S. government, whose integrity and judgement is beyond question, does not pass the laugh test.

Their warnings over possible debt downgrades associated with delays in raising the debt ceiling may be made in good faith. Certainly the failure to raise the ceiling by August 2 would be very bad news for the creditworthiness of U.S. debt. But, their recent history suggests that any statement from these companies must be viewed with a bit of skepticism.

It is also worth noting that the markets have often not agreed with the rating agencies' assessments. Both have downgraded Japan's debt, yet the country can still sell 10-year bonds at interest rates of less than 1.5 percent.

Is David Brooks Really Clueless About the Inefficiency of the U.S. Health Care System? Print
Friday, 15 July 2011 03:56

David Brooks appears to have made a remarkable leap forward today. He told readers, "the fiscal crisis is driven largely by health care costs."

Yes, after writing endless columns about out-of-control government spending and the wild liberals in the Democratic Party, someone apparently got David Brooks to look at the budget numbers. And, he saw what every budget wonk knows. While the current deficits are overwhelmingly the result of the devastation caused by the collapse of the housing bubble, the longer term shortfall is entirely the result of the projected rise in health care costs.

However, it seems that no one told Brooks that the problem is not that people in the United States are getting too much care, the problem is that we are paying too much for the care we get. The United States pays close to twice as much for its drugs, its doctors, its medical equipment as people in other wealthy countries. As a result, our per person health care costs are more than twice the average of other wealthy countries, even though they all enjoy longer life expectancies. If we paid the same amount per person for our health care as people in other wealthy countries, then we would be looking at long-term budget surpluses, not deficits.

This means that Brooks' discussion of our willingness to die when life loses its joys is beside the point. The choices around the end of life are important and difficult, but that is not our health care cost problem. Our health care cost problem is the cesspool corruption that we rely upon for our health care.

Brooks has made a huge step forward by recognizing that the fiscal problem is not one of government spending generally, but rather spending on health care. Now he has to make another huge step forward to recognize that our health care system is a money pit that is better at transferring money to providers than giving care to the public.

The NYT Makes It Up to Cover Up for Republicans Print
Thursday, 14 July 2011 21:29

In an opinion piece that appeared as a front page news story, the NYT told readers that the debt ceiling battle is "a war over government." The first sentence tells readers that:

"intense exchanges this week between the two parties have made it clear that this is not so much a negotiation over dollars and cents as a broader clash between the two parties over the size and role of government."

This is 100 percent the interpretation of the reporter/editor. This is the sort of piece that newspapers ordinarily put on the editorial pages.

While it is certainly possible that the two sides have different views of government, that is hardly clear from the available evidence. By all accounts, it was President Obama who put cuts to Social Security on the table, not the Republicans. And the polls consistently show that the vast majority of Republicans, like the vast majority of Democrats, are opposed to cuts in both Social Security and Medicare. It is not clear that this is really a source of divide between the two parties even if their leadership may go in somewhat different directions.

The most obvious difference between the two parties, which the Republicans have stated repeatedly, is that they don't want anyone, especially rich people, to pay higher taxes. In other words, the Republicans want rich people to have more money.

Given that this has been set as an explicit line in the sand by the Republicans, it is difficult to understand how the NYT can ignore their claim and instead tell readers that this is somehow a philosophical dispute about the size and role of government. It is especially hard to understand how it can do this in a "news" story.

Amazon, the Leader of the Tax Cheat Industry Print
Thursday, 14 July 2011 04:59

Amazon is known throughout the world as one of the most innovative tax cheats anywhere. It makes its profit largely by allowing customers to avoid state sales taxes and sharing the savings. States are now taking steps to crack down on this scam, requiring Internet retailers with any ties to in-state businesses to start collecting taxes on their sales in the state. California took this route this month.

The NYT had an article highlighting Amazon's efforts to fight back to protect its loophole, which includes a plan to place an initiative on California's ballot. In laying out Amazon's argument, the piece includes an unanswered argument from Amazon, that the law places a huge burden on small Internet retailers by requiring them to collect taxes in hundreds of different jurisdictions.

The piece should have reminded readers that there are services that will handle the tax collection for smaller businesses for a modest fee. These services are comparable to the payroll companies that small businesses often rely upon to get tax and benefit payments handled correctly.

Amazon has a history of putting out absurd arguments to protect its tax loophole. It had previously argued that it lacked the technical competence to keep track of the different tax provisions in all the jurisdictions where it sold products. This argument was contradicted by the fact that retailers like Wal-Mart and Target seem to have relatively little problem getting tax collections mostly right. Presumably, the programmers at the these traditional brick and mortar retailers are not that much more competent than the crew at Amazon. 

Given Amazon's history, the NYT should not present its claims to readers without including a response.

The United States Will Never Be Like Greece, # 24,763 Print
Thursday, 14 July 2011 06:59

The Washington Post, which regularly uses both its editorial and news pages to push for budget cuts, has a front page article today that warns the United States could end up like Greece. The article includes a quote from University of Maryland economist Peter Morici, telling readers that:

"If Congress raises the debt ceiling without a long-term plan for reducing the federal deficit, he added, 'they’ll never solve the problem, and we’ll end up like Greece.'"

It would have been worth pointing out that the United States cannot end up like Greece because the United States, unlike Greece, has its own currency. Greece is like the state of Ohio. If it has a shortfall it has to borrow in financial markets. Ohio can appeal to the federal government for assistance, just as Greece can turn to the EU, the ECB, and the IMF, but both have to accept whatever terms these bodies impose as a condition for their support.

By contrast, the U.S. government is always free to buy up debt issued in its own currency through the Fed. In principle, this could lead to a problem of inflation, however the economy is very far from reaching this point with a vast amount of unemployed labor and under-utilized capacity.

Of course, the U.S. government also has no difficulty whatsoever borrowing in financial markets. It is currently able to sell long-term debt at interest rates just over 3 percent. This means that the people investing trillions of dollars in these markets do not share Mr. Morici's assessment of the fiscal situation of the U.S. government.

It would have been worth presenting the views of someone who could tell the difference between the United States and Greece in this article.

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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.