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Plunging Mortgage Applications: Reporters Should Notice Print
Wednesday, 18 May 2011 19:46

Home sales fell through the floor last May as the first time home buyers tax credit ended in April. The expiration of the credit pulled a lot of sales forward, so that few people were buying in May.

This is why it should have people very concerned that purchase mortgage applications for last week were actually slightly below the level for the same week last year. The same was true for the prior week also. These are weekly data, which means that the numbers will be erratic, but this is not a good sign.

Record High Used Car Prices Reappear in USA Today Print
Wednesday, 18 May 2011 13:19

USA Today is now telling us that used car prices may not stay at their record highs. As I explained last week, we expect most items to be hitting record-high prices most of the time, since the economy is seeing moderate rates of inflation, not deflation. However, it turns out that we are not actually seeing record high car prices rights now, at least not according to the Bureau of Labor Statistics. The difference between the indexes referred to in the article and the index shown in the graph is that the Bureau of Labor Statistics adjusts for changes in quality.





According to Economists, Increased Pension Payments by Federal Employers are a Cut in Pay Print
Tuesday, 17 May 2011 05:38

This basic fact should have been included in a Washington Post piece that talked about plans to require federal employees to contribute more from their paychecks to their retirement plan. Economists of all political persuasions view workers' pay as a total compensation package. When comparing pay in different jobs or industries economists include employer payments for health insurance, pensions, and other benefits, along with straight wages.

This means that when political figures call for federal employers to pay more money out of their paycheck into their pensions, they are calling for these workers to get a pay cut. This is not a debatable point in a he said/she said as this article implies. It is true.

Ezra Klein Gets It half Right on the Dollar Print
Tuesday, 17 May 2011 05:17

Ezra Klein makes the case that the United States needs a weaker dollar in order to increase net exports and move towards more balanced trade. (Former Senator Ernest Hollings referred to the weaker dollar as a "competitive" dollar.) However it wrongly thinks the need is temporary and that China' currency policy is the sole problem.

In fact, the problem of the over-valued dollar is longstanding and dates back to Robert Rubin's days as Treasury Secretary. When Rubin took over as Treasury Secretary he reversed his predecessor's position that the dollar should be allowed to drift downward.

In fact, the decline in the value of the dollar was supposed to be one of the fruits of President Clinton's deficit reduction policy. A lower valued dollar was suppose to boost U.S. net exports and turn our trade deficit into a trade surplus. In standard economic theory rich countries are supposed to run trade surpluses, lending capital to poorer developing countries.

Rubin instead insisted that the United States wanted a high dollar. He put muscle behind this view in 1997 East Asian financial crisis. He used the Treasury Department's control over the IMF to force the crisis countries to repay their debts in full, instead of allowing for defaults and write--downs. The repayment was financed by a massive boost in exports from the region. This was made possible by sharply lower values of their currencies against the dollar. In other words, the value of the dollar rose.

The harsh conditions imposed by the IMF in the East Asian crisis led countries throughout the developing world to begin to accumulate reserves on a massive basis in order to avoid ever being forced to deal with the IMF. This meant deliberately depressing the value of their currency against the dollar.

The huge U.S. trade deficit in the late 90s and the last decade was a major source of the imbalances of these years. A trade deficit logically implies (i.e. there is no damn way around it) either a large budget deficit or negative private savings, or some combination.

In the late 90s, the country had a budget surplus, but negative private savings. This was the result of the stock bubble. The wealth created by that bubble led to a consumption boom which pushed savings rates to levels that were at the time record lows.

After the stock bubble collapsed, the budget deficit returned. While the deficit fell back to more normal levels in 2006 and 2007, this was associated with private savings again becoming highly negative as the household saving rate fell to near zero in the years 2004-2007. The culprit in this case was the wealth created by the housing bubble.

Klein misses this story. The over-valued dollar is not a side-bar, nor is China a lonely culprit in this story. The over-valued dollar is central to any understanding of the U.S. economy over the last 15 years. 

The Post Thinks That Its Readers Have More Time to Study Budget Proposals Than Its Reporters Print
Tuesday, 17 May 2011 05:06

That is the only thing that readers can conclude from a classic he said/she said piece about the Ryan budget plan approved by House Republicans last month. The piece simply repeated assertions about his budget from Representative Ryan and responses from House Minority Leader Nancy Pelosi and other Democrats.

It did not, for example, point out that the Congressional Budget Office projects that the Ryan plan would increase the cost of buying Medicare equivalent policies by $34 trillion (5 times the projected Social Security shortfall) over the program's 75-year planning period. Nor did it point out that the Republican proposal envisions that by 2050, most areas of government spending, including the military budget, will shrink to a size that is less than two-third the current size of the military budget.

The Post readers generally will not have time to look such things up for themselves. Post reporters should.

How Does the Post Know the Way Republicans "Regard" the Health Insurance Exchanges In the ACA? Print
Tuesday, 17 May 2011 04:53

Of course the Post does not have a clue as to how Republican politicians actually "regard" the health insurance exchanges established under President Obama's health care plan. All the Post can know is what these politicians say. It has no idea what, if anything, they actually believe about this system. This should cause readers to question why it asserted:

"Republicans, however, regard it [the insurance exchange system] as a likely first step down the road to a government-controlled insurance system."

The people in question are politicians, not political philosophers. They do not get their jobs for their refined views on social and economic issues. They get their jobs for appealing to important interest groups. The Post should understand this fact.

Greed and Medicare: Understating the Waste in the Ryan Plan Print
Tuesday, 17 May 2011 04:36

Timothy Egan understated the extent to which the Ryan plan would raise costs for Medicare beneficiaries. He reports that it would double the amount that the typical beneficiary would have to pay for their care. Actually, the Congressional Budget Office projects that it would triple the cost for retirees by 2030, with the ratio rising even higher in later years. (This doesn't take account of the increase in the eligibility age to 67.)

It's worth noting that the vast majority of this additional cost is due to increased payments to the insurance industry and health care industry. The CBO projections imply that only about one-fifth of the increased cost to beneficiaries will be savings to the government.

Robert Samuelson Is Too Lazy to Look Up Income Data for the Elderly Print
Monday, 16 May 2011 04:11

Fortunately for Samuelson, his job as a columnist for the Washington Post doesn't require him to know anything about income distribution among the elderly, even though according to his own claim, he has been writing about it for decades. Samuelson has another big push for means-testing of Social Security and Medicare, telling us how wealthy the elderly are.

Samuelson's piece is full of comments that are either deliberately misleading or profoundly ignorant. For example, he tells readers:

"From 1959 to 2007, the proportion of the 65-plus population with incomes under the government’s poverty line ($12,968 for a couple in 2009) dropped from 35.2 percent to 9.7 percent, which was half the poverty rate for children under 18 (18 percent)."

It's true that the elderly poverty rate has fallen from what had been very high levels to roughly the same rate as for the adult population as a whole. It's not clear why Samuelson thinks it is appropriate to compare their poverty rate to that of children. Would he also compare the poverty rate for African Americans to the poverty rate for children to tell us that it's not that bad?

Furthermore, there are serious questions about the methodology for calculating poverty among the elderly. The methodology designed by the National Academy of Sciences shows the poverty rate for the elderly is about 10 percent (@1.1 percentage point) higher than for the prime age adult population.

Samuelson also quotes a government report telling us that:

"Most older people are enjoying greater prosperity than any previous generation."

This would actually be true of any age group, at least before the recession. Per capita income is growing at roughly a 2.0 percent annual rate. It has nearly doubled since 1980. Even with substantial upward redistribution, most people at most points in the income distribution have seen some gains over this period.

Most importantly, if Samuelson did know anything about income distribution among the elderly he would know that means-testing of Social Security and Medicare is not likely to save much money unless the intention is to take benefits away from middle-income people. The problem is that the portion of the benefits going to the wealthy (as opposed to the portion of income) is not very large.

Means-testing cannot be a cliff where everyone earning over some amount (e.g. $100k or $200k) gets zero. It has to involve a phase out. Unless these phase outs start at incomes around $40k (Samuelson's definition of wealthy?) and are very steep, they will not save much more than they would cost to administer.

Fortunately for Samuelson, his job does not require him to know anything about income distribution among the elderly.

Tell Jacob Lew, The Economy, Not Deficit Reduction, Gave the Country a Balanced Budget Under Clinton Print
Monday, 16 May 2011 03:49

The NYT has an article discussing the possibility of an automatic spending cut rule as a mechanism to hit deficit targets. It quotes President Obama's budget director, Jacob Lew, on the past success of such rules.

Mr. Lew credits such budget rules for reaching a balanced budget in the 90s. Actually, these rules were of limited value relative to much better than expected economic growth. In 1996, the Congressional Budget Office (CBO) projected a deficit in the year 2000 of 2.7 percent of GDP. The government actually ran a surplus of 2.4 percent of GDP, a shift of 5.1 percentage points of GDP, the equivalent of $750 billion in today's economy.

According to CBO, none of this shift from deficit to surplus was the result of spending constraint or tax increases, its scoring shows that legislated changes over this 4-year period actually raised the deficit by $10 billion. By far the biggest reason that the budget shifted from a large deficit to a large surplus was much better than expected economic growth.

This growth pushed the unemployment rate down to 4.0 percent in 2000. CBO projected that it would be 6.0 percent. Mr. Lew should know that it was economic growth, not spending constraints that led to the Clinton surpluses. The NYT should have pointed this fact out to readers.

The Reason the Public Option Failed: The Post Never Heard About It Print
Sunday, 15 May 2011 08:15

During the debate over the health care bill, tens of thousands of health care activists pushed for either a universal Medicare-type system or having the option of buying into a Medicare-type public plan included in the exchanges established in the plan that ultimately was passed into law. In spite of the work of these activists, which did lead the overwhelming majority of congressional Democrats to support a public option, no public option was included in the final bill.

Remarkably, it seems that the Washington Post (a.k.a. Fox on 15th Street) never heard about this debate. Its lead editorial told readers that:

"The current debate has an ideological incoherence on both sides. Republicans endorse a premium support model for Medicare even as they work to undo the new insurance exchanges in the health-care law. Democrats distrust premium support when it comes to Medicare but support the exchanges, with sliding scale subsidies that amount to premium support, in the health-care plan."

If the Post had heard about the debate over a public option they would know that the vast majority of Democrats actually distrust a system of premium supports when it comes to the exchanges as well. This is why they pushed so hard for the public option. This public plan would both provide people with a way of escaping the private insurance system altogether and provide an effective competitor that could help to ensure that private plans did maintain acceptable standards.

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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.