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Do All Democrats Think That President Obama's Budget Cuts Are Too "Timid?" That's Right, It's Another Front Page Washington Post Editorial Print
Saturday, 21 May 2011 07:27
The Washington Post had a front page piece reporting on how Senate Democrats find themselves taking a back seat in current political debate in Washington. At one point the article refers to Senate Minority Leader Mitch McConnell's plan to bring President Obama's budget to a vote, adding:

"which both parties lambasted as being far too timid in dealing with the nation’s swelling deficit."

Of course this assertion is just an invention of the folks at Fox on 15th Street. While there may be some business-associated Democrats who have lambasted President Obama's budget for being too "timid," the vast majority of congressional Democrats have made no such criticism. Needless to say, this statement does reflect the Washington Post's editorial position on the budget.

Politico Has Not Heard About the Collapse of the Housing Bubble and Economic Crisis Print
Friday, 20 May 2011 11:01

That is the conclusion that readers of a Politico article headlined, "budget surplus to deficit: how we got here," must conclude. This article attributes the increase in the deficit in the Obama years to increased spending coupled with tax cuts, only mentioning in passing at the end of the article that the single biggest factor in the rise of the deficit was the economic collapse. It fails to point out that virtually all of the additional spending and tax cuts by President Obama was carried through for the explicit purpose of counteracting the loss of private sector demand due to the collapse of the bubble.

It is absolutely inexcusable for a serious news organization to run a piece like this. The collapse of the housing bubble was by far the biggest economic disaster since the Great Depression. Complaining about the size of the deficit under President Obama, while only mentioning in passing the reason for the deficit, is like complaining about a city's use of water without mentioning that it had been trying to extinguish a massive fire.

If reporters and editors were held accountable for the quality of their work in the same way as dishwashers and schoolteachers, people would be fired for this piece.

Failed Medical Innovation: The Secret to the Lower Than Expected Cost of the Medicare Drug Plan Print
Friday, 20 May 2011 05:46

Michael Leavitt, the Secretary for Health and Human Services under President Bush, touted the Medicare Part D model in an oped in the Washington Post. Leavitt argued that this model, which provided a prescription drug benefit through private insurers, has been effective in providing a wide range of choices to beneficiaries and holding down costs. He notes that the cost of the program has been far lower than the Congressional Budget Office had projected.

While Leavitt is correct in pointing out that the drug benefit has cost much less than had been projected, it is important to note that drug prices in general have risen much less rapidly than was projected when the benefit was introduced in 2006. The obvious explanation for the lower than expected increase in drug prices is a much slower rate of innovation.

In the years since 2005, the Food and Drug Administration has been granting approvals for new drugs that it assigns priority reviews, meaning that they provide a qualitative improvement over existing drugs, at roughly half of the rate that it did in the 1990s. The number of priority approvals averaged just 10 between 2005-2009 compared to 19.9 in the 1990s.




Source: FDA and Knowledge Ecology International.


These new drugs, which supposedly provide much greater medical benefits than existing drugs, are the major factor driving cost increases. Therefore, it is not surprising that a slowdown innovation would be associated with a slower rate of increase in the cost of drugs, including the cost of drugs provided through Medicare Part D.

According to the Center for Medicare and Medicaid Services, we are spending almost 4 times as much on prescription drugs today (adjusted for inflation) as we did in 1990. Given this increase in spending, it would be reasonable to expect the rate of drug development to increase.

Is Robert Rubin Really Still an Authority on the Economy? Print
Friday, 20 May 2011 05:12

Ezra Klein apparently thinks so. He turned to Mr. Rubin to get his assessment of the risks of letting the country default on its debt.

As Treasury Secretary, Rubin pushed the high dollar policy that created the enormous trade imbalance that still afflicts the U.S. economy. He also stood by as the stock bubble rose to ever more dangerous levels. He insisted on removing restrictions on financial industry risk-taking, over-riding efforts by other regulators.

After leaving the Clinton administration he became a top official at Citigroup. Citigroup packaged hundreds of billions of dollars of bad mortgages into mortgage backed securities, helping to inflate the housing bubble. The bank was only saved from collapse with a massive government bailout. Mr. Rubin pocketed over $100 million for his work with the bank.

Is Paying a Bus Driver $38,000 a Year Generous? Print
Friday, 20 May 2011 04:55

Apparently it is, according to a front page news story in the Washington Post on a budget provision approved by the Montgomery County Council that would require county employees to pay much more for their health care. The article notes that range of salaries for county employees, beginning with bus drivers who earn $38,000 a year.

It then tells readers:

"But the way they [the increased employee payments for health care] were passed shows what happens when a wealthy, liberal county is forced to confront years of political accommodation and generous spending."

The Nanny Economy in Brazil Print
Friday, 20 May 2011 04:33
The NYT tells us that working conditions and wages are improving for nannies in Brazil. In fact, even some of the nannies now have nannies. It would be useful if this piece included some information on the number of people who work as nannies.
Senator Coburn Still Doesn't Know About the Housing Bubble Print
Thursday, 19 May 2011 05:35
The Washington Post has a practice of granting oped space to almost anyone who is prepared to advance its agenda of deficit reduction. Today it opens its pages to Senator Tom Coburn who begins his piece by telling readers that:

"Any honest view of our debt, deficits, size of government and demographic challenges shows we must make major changes if we are going to pass on the American way of life to our children. Each week seems to bring new warning signs: slower-than-expected growth (already as much as 25 to 33 percent every year, some estimate), higher-than-expected unemployment numbers."

Actually the current period of high unemployment and slow growth has nothing to do with the budget deficit. It is the result of the collapse of the $8 trillion housing bubble. Unfortunately, Federal Reserve Board chairs Alan Greenspan, Ben Bernanke and other policymakers overlooked this enormous bubble as it was growing. Apparently, Mr. Coburn has not noticed the bubble even now that its collapse has wrecked the economy.

At one point, Coburn cites Morgan Stanley Director Erskine Bowles calling the deficit situation, "... the most predictable economic crisis in history." Actually, the housing bubble was probably the most predictable economic crisis in history. Unfortunately, almost no one in a policy position was able to predict it.

Contrary to Mr. Coburn's assertion at the beginning of his, any honest view of the debt, deficits, size of government and demographic challenges shows that we have to fix our health care system. If per person health care expenditures were comparable to what they are in Germany, Canada, or any other wealthy country with a longer life expectancy than the United States we would be looking at budget surpluses, not deficits.

And It All Has Nothing to Do With the Price of Gas! Print
Thursday, 19 May 2011 05:25

The Democrats want to take away tax breaks from the big oil companies, the Republicans want to let them drill more places. These may be good or bad policies, but neither will have any noticeable effect on the price of gas.

Let's say that 20,000 times. Neither of these policies will have a noticeable impact on the price of gas. This is not a disputable point.

Getting more tax revenue from the oil industry may be a good idea, especially in a context where Congress is obsessed with reducing the deficit, but it will not reduce the price of gas.

Similarly, the opening of new areas off the coast to drilling cannot possible generate enough additional oil to have any noticeable effect on the world price of oil. When politicians say that they want to increase drilling to bring down gas prices they either do not know what they are talking about or they are not being truthful. 

Either way, this assertion should be treated as a gaffe. (You know, like then Senator Obama's comment about guns and religion during the presidential primaries.) Politicians who make such inaccurate assertions should be pressed on them. The media should try to determine whether they are really completely ignorant of the dynamics of the world oil market or they are just trying to deceive the public.

It should not just imply that opening new areas to drilling is a plausible way to reduce gas prices, as is done in this article

Chris Farrell Is Mistaken, Pension Funds Will Get 8 Percent Returns Print
Thursday, 19 May 2011 05:00

On Marketplace radio this morning Chris Farrell told listeners that state pension funds will only get 4-5 percent nominal returns in the years ahead, not the 8 percent that many have assumed. This is wrong. Given the mix of assets held by these funds, current stock market valuations, and projected economic growth, 8 percent is the expected rate of return on these funds. It is virtually impossible to describe a scenario in which returns will only be the 4-5 percent rate suggested by Mr. Farrell.

Many people who want to see the benefits of public employees reduced are complaining now that current assumptions on returns are excessive. In fact, they should have complained in the late 90s, during the stock bubble years, when the assumptions of returns were demonstrably excessive. It is striking that many of the same economists, who completely missed the stock bubble and then the housing bubble, are now the experts that the media turn to when assessing the market's prospects going forward. 

The U.S. Has "Free Trade" Agreements, not Free Trade Agreements Print
Thursday, 19 May 2011 04:53

When the United States negotiates trade agreements with countries in Latin America, it likes to call them "free trade agreements." Apparently this makes them more salable than simply calling them "trade agreements."

These deals do not actually lead to free trade. They generally do almost nothing to remove the barriers that protect highly paid professionals, like doctors and lawyers, from foreign competition. More importantly they increase many protectionist barriers, like patent and copyright protection, which raises prices by several thousand percent above the free market price.

For this reason, in this article on relationships with Latin America, the NYT should either have simply called the agreements negotiated with Panama and Colombia "trade agreement" or used quotation marks in describing them as "free trade" agreements.

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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.