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Debt Default Would be Death for Wall Street, not the Country Print
Tuesday, 10 May 2011 05:27

A front page Washington Post article included an assertion from Roger Altman, who is identified as "a private-equity investor who served in the Clinton Treasury Department," that defaulting on the national debt would be the "financial equivalent of suicide."

It is worth noting that Wall Street would be especially hard hit by a debt default. While a default would almost certainly lead to a severe financial crisis, even worse than the one in the fall of 2008, the rest of the economy would most certainly recover. We would have the same capital stock, infrastructure, state of technical knowledge and skilled labor force after the crisis as before.

However, the Wall Street banks would almost certainly not recover. They would almost certainly end up in bankruptcy. Their successors would probably never be as powerful in international finance as the current group of institutions. For this reason, Altman and other Wall Street financiers have far more to fear from a default than does the rest of the country. It would have been useful to include a wider range of perspectives on the impact of a debt default.

USA Today Tells Readers that Used Car Prices are at Record Highs Print
Tuesday, 10 May 2011 05:12

This assertion is strange for two reasons. First, since prices generally rise through time (we have modest rates of inflation, not deflation), most prices will be at record highs most of the time. In other words, it is likely that the price of tables, hair cuts, bread and most other goods and services are at or near record highs.

The other reason why the assertion is strange is that it does not appear to be true. The Bureau of Labor Statistics (BLS) price index for used cars actually shows that they are lower, in nominal terms, than they had been in the late 90s (the graph shows nominal prices).


It is possible that the measures followed by USA Today do not track the BLS data closely because BLS makes quality adjustments in comparing prices. For example, if a car comes with a better braking system or sound system than the prior year's model, this will be factored into the price. A straight price comparison of the newer car with the older car may show a price increase, but when a value is assigned to these improved features, it may turn out that the price has remained the same or even fallen.

NPR Does a He Said/She Said on Debit Card Swipe Fees Print
Tuesday, 10 May 2011 04:34

NPR did a classic he said/she said piece on the battle over debit card swipe fees. It gave people the line from the banks about how they will have to cut back on services to customers if fees are reduced. It also presented the line from retailers on how most of the savings will be passed on to consumers. It presented no independent analysis. (It is likely that most of the $12 billion in savings will be passed on to consumers.) This would have been useful since most listeners do not have more time to evaluate this issue than NPR's reporters.

David Brooks Mendaciously Refuses to Look at Evidence on the Relative Efficiency of Private and Public Sector Health Care Costs Print
Tuesday, 10 May 2011 04:08

David Brooks is very angry that Democrats are relying on the Congressional Budget Office's analysis of the Medicare privatization plan put forward by Representative Paul Ryan and approved by the Republican House. This analysis shows that the Ryan plan would increase the cost of buying Medicare-equivalent policies by $34 trillion over the program's 75-year planning period. This increased cost is almost 7 times the size of the projected Social Security shortfall.

Brooks wants Democrats to ignore the evidence that shifting from a public Medicare program to private insurers will increase costs and instead accept his claims that Ryan's plan will save money. He describes their refusal to follow his faith-based policy as "mendacity."

Interestingly, Brooks discusses the increasing number of prime age men who are not employed without ever once mentioning the criminal justice system. A hugely disproportionate share of non-employed prime age men have spent time in jail or prison. The enormous growth in incarceration rates over the last three decades (the number of prisoners has more than quadrupled since 1980) is almost certainly an important factor in declining employment rates.

Robert Samuelson Continues His Reign of Error: Relies on Realtors for Predictions on Housing Prices Print
Monday, 09 May 2011 04:37

Robert Samuelson pulled a Washington Post special, reporting that:

"Young buyers 'will be able to enter the housing market at bargain prices,' argues NAR [National Association of Realtors] economist Lawrence Yun. When home prices again rise, increases will parallel income gains, meaning that the relative burden of housing costs will remain roughly stable, Yun says."

Actually, home price increases do not "parallel income gains." They track the overall rate of inflation, as has been shown with a century of data compiled by Yale University Professor Robert Shiller.

Relying on the NAR for predictions on the housing market is the standard practice at the Washington Post. All through the build up of the housing bubble, its main source on the housing market was then NAR chief economist David Lereah, who was also the author of the 2006 best seller, Why the Real Estate Boom Will Not Bust and How You Can Profit From It.



Those AIG Boys Are At It Again Print
Monday, 09 May 2011 04:27

The NYT tells us that the states are competing with each other and Bermuda to attract shell insurance companies with weak regulation. The deal is that insurers will establish a legal entity in your state, which can then be taxed, if you don't make them hold much in reserve. (AIG is one of the beneficiaries of this type of deal.) 

Haven't we seen this movie before?

The Big Debate Over Big Oil's Tax Breaks Print
Monday, 09 May 2011 04:14

The NYT reported on the effort by congressional Democrats to take back $20 billion in tax breaks for the oil industry over the next decade. The article tells readers that this is an effort to reduce the budget deficit. It would have been helpful to point out that this amount comes to less than 0.3 percent of the deficit projected over this period.

These tax breaks are arguably an unwarranted subsidy to hugely profitable oil companies, however it is not plausible that they will have a notable effect on the deficit over the next decade. This fact should have been pointed out to readers, just as reporters should point out that Republican efforts to increase drilling cannot plausibly be expected to have a noticeable impact on gas prices.

Gregory Mankiw's Pop Quiz on the Economy Print
Saturday, 07 May 2011 13:08

In his weekly column in the NYT, Gregory Mankiw gave a three question quiz for economists. His questions are:

1) How long will it take for the economy’s wounds to heal?

2) How long will inflation expectations remain anchored?

3) How long will the bond market trust the United States?

Let's start with questions 2 and 3, because these are easier. 

The answer to question number 2 seems obvious -- as long as there is no inflation. Why should people expect inflation when they are not seeing any? There is no evidence of generalized cost pressure in the economy as all indexes of wages are showing the rate of wage growth remaining pretty much constant. Commodity prices did rise, but this was mostly just a return to pre-recession levels, and it is not clear that these prices are even sticking at their higher level. This question is sort of like asking in the middle of a drought in the desert, when will people expect rain? Presumably when they see clouds on the horizon and not until then.

The answer to question 3 largely follows the answer to question 2. After all, the real threat to those holding U.S. government bonds is inflation, not insolvency, unlike the euro zone countries that Mankiw refers to in his piece. The United States can always print more dollars to meet its obligations. Greece cannot do the same with euros.



The Post Bombards Readers With Misinformation About Jobs and the Economy Print
Saturday, 07 May 2011 07:56

The Post once again showed why it is known as "Fox on 15th Street," running an editorial with the subhead, "tackling the specter of structural unemployment," which essentially offers nothing to address the problem.

The piece got off to a bad start early, telling readers:



Will the Washington Post Ever Tell Readers that the Republican Medicare Privatization Plan Would Add $34 Trillion to the Cost of Buying Health Care in Retirement? Print
Saturday, 07 May 2011 07:43

That is what the projections from the Congressional Budget Office (CBO) imply. And, just to be clear, this is the additional waste that CBO projects would result from running the program through private insurers. The figure does not include roughly $5 trillion in expenses that would be transferred from the government to insurers.

The $34 trillion figure comes to $110,000 for every man, woman, and child in the country. It is almost 7 times the projected Social Security shortfall. While the Post has devoted endless space (in both its news and opinion sections) hyping the need to fix Social Security, it has never once mentioned this much larger cost to the country projected by CBO. Instead its articles on the Republican Medicare plan have been entirely of the he said/she said variety and discussions of its political prospects.

A serious paper would discuss the substance. The Post's readers don't have more time to look into this issue than its reporters.

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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.