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Gene Sperling Thinks Asset Bubbles Are Cool Print
Thursday, 06 January 2011 06:26

I will depart from my policy of not commenting on articles where I am mentioned to clarify the issues (to me) surrounding Gene Sperling's selection as a President Obama's national economic advisor. The primary issue is not that Sperling got $900,000 from Goldman Sachs for part-time work, although that does look bad. The primary issue is that Sperling thought, and may still think, that the policies that laid the basis for the economic collapse were just fine.

Sperling saw nothing wrong with the stock market bubble that laid the basis for the 2001 recession. The economy did not begin to create jobs again until two and a half years after the beginning of this recession and even then it was only due to the growth of the housing bubble. Gene Sperling also saw nothing wrong with the growth of that bubble. Gene Sperling also saw nothing wrong with the financial deregulation of the Clinton years which, by the way, helped make Goldman Sachs lots of money. And, he saw nothing wrong with the over-valued dollar which gave the United States an enormous trade deficit. This trade deficit undermined the bargaining power of manufacturing workers and helped to redistribute income upward.

In short, Sperling has a horrible track record of supporting policies that were bad for the country and good for Wall Street. This track record is far more important than his $900,000 consulting fee in providing my basis for objecting to Sperling's appointment. It is remarkable that it was not mentioned in this article.

 
Growing Estonia Has 16.2 Percent Unemployment Print
Thursday, 06 January 2011 06:17
The Washington Post had an article on Estonia's entry into the euro zone. It contrasted Estonia, along with Germany, as "growing" economies, with debt laden ones, like Greece and Ireland. It would have been worth noting that Estonia now has an unemployment rate of 16.2 percent. It's economy shrank by more than 15 percent in the downturn and it is not projected to get back to its 2007 level of GDP until after 2015. For these reasons, it is strange to paint Estonia as a success story.
 
The NYT Gets It Wrong: Bill Clinton and Gene Sperling Did Not Create the Earned Income Tax Credit, Richard Nixon Did Print
Wednesday, 05 January 2011 22:07

The NYT ran a blognote providing background on Gene Sperling, who is likely to be selected as President Obama's new National Economic Advisor. At one point the post refers to Sperling's work in the Clinton administration and told readers that he is:

"particularly proud of the work he and colleagues did to create the Earned Income Tax Credit."

Actually the Earned Income Tax Credit was a Nixon administration policy that first took effect in January of 1975.

[Addendum: the NYT has now corrected the post. Also, the EITC law was actually signed by Ford after Nixon resigned.]

 
Hasn't Casey Mulligan Gotten the October House Price Data Yet? Print
Wednesday, 05 January 2011 06:12

Casey Mulligan has a blognote in the NYT today dismissing concerns about a double-dip in the housing market telling readers that:

"the price and construction data so far do not seem to suggest that home values will be significantly different this year than they were in 2010."

Those looking at Mr. Mulligan's charts will note that he only shows the Case-Shiller data on home prices through September. This is striking because the Case-Shiller 20-city index was released the last Tuesday of 2010. This index showed a price decline of 1.3 percent from September to October. Over the three months since prices temporarily peaked in July, at the expiration of the first-time buyers tax credit, home prices have fallen at a 9.2 percent annual rate.

Home prices in the bottom third of the market, which was most affected by the credit, are plunging in almost every city. These declines are likely to affect the higher end of the market in the year ahead since the people selling bottom tier homes are the ones buying more expensive homes. These data form the basis for most concerns about further declines in house prices. Without the most recent data it is difficult to make useful projections about 2011 prices.

 
For Governor Mitch Daniels High Income is $60,000 a Year Print
Wednesday, 05 January 2011 05:58

The NYT profiled Indiana's governor Mitch Daniels as a responsible deficit hawk. At one point it describes his agenda for saving money on Social Security and Medicare:

"Benefits should be cut for high-income and healthy people."

It is worth noting that most of the proposals for changes in the Social Security benefit formula of the type described in the article would reduce benefits for people who have had average earnings as low as $40,000 a year. This is not an income level that would usually be described as "high income." For tax purposes, President Obama and the Democrats in Congress have used $200,000 as a cutoff.

 
NYT Enters Fantasy Land to Criticize Democrats Print
Tuesday, 04 January 2011 22:11

Given that the unemployment rate is 9.8 percent, that more than 1 million people a year are losing their homes to foreclosure, and that corporate profits are back at pre-recession levels, one would think that there are plenty of legitimate grounds to criticize President Obama and the Democrats in Congress. But, the NYT decided not to restrict itself it to reality.

In a piece warning the Republicans not to misread their mandate the NYT explained that this is exactly what the Democrats had done:

"It’s also how Democrats elected in 2006 and 2008 came to enact a series of expensive new programs without ever really bothering to explain to the public why such investments were necessary or how they would be paid for. They wanted to believe the voters had risen up to demand a resurgence of liberal government, when in fact all the evidence suggested that all anxious voters really wanted was a government that seemed to work."

It would have been great if the NYT could have given 2 or 3 examples of "expensive new programs" that the Democrats had enacted without paying for. The only expensive program that sticks out at the moment is the health care reform bill. This bill is paid for, at least according to the Congressional Budget Office, even if not according to the NYT.

Given the fact that this piece is completely out of touch with reality perhaps the NYT has decided to introduce a comics section.

 
Post Wrongly Calls William Daley a "Free-Trade Stalwart" Print
Tuesday, 04 January 2011 06:16

The Post used this term in a piece reporting that the J.P. Morgan executive may become President Obama's next chief of staff. In fact, NAFTA, which Daley helped push through Congress, and other trade deals that he has supported included many protectionist provisions, most importantly increasing intellectual property protections. These deals also did little or nothing to free up trade in highly paid professional services like those provided by doctors and lawyers.

The trade deals supported by Daley were primarily about subjecting manufacturing workers to increased competition with low-paid workers in the developing world, thereby driving down their wages. They had little to do with free trade.

 
David Brooks Says Financial Speculation Taxes Are Under Consideration Print
Tuesday, 04 January 2011 05:45

Yep, Brooks said that proposals to raise $150 billion a year from Wall Street banks and speculators are now on the national political agenda. So are alternatives to patent monopolies for supporting prescription drug research and international Medicare vouchers that will allow beneficiaries to take advantage of the more efficient health care systems in Germany, Canada and elsewhere, with the government and the beneficiary splitting the savings.

Brooks told readers this morning that "...the exciting thing about this moment is that everything is on the table," so all of these policies must be under consideration. Okay, Brooks probably didn't really mean this, but we can still have fun.

He should also correct his characterization of big versus small government. He seems to use government spending as a share of GDP as a measure of whether government is "big." In fact, a government that spends less as a share of GDP can easily have more control over the economy than a larger government. For example, a government can mandate private expenditures such as the purchase of health care rather than pay for health care through direct spending. Or, it can grant monopolies like patents and copyrights instead of paying subsidies. It can also give out tax expenditures, like the mortgage interest deduction, instead of paying out subsidies.

The government can also squeeze large segments of the workforce by having the Federal Reserve Board pursue policies  that push up interest rates and therefore unemployment. Such policies would also have the effect of squeezing state and local governments, forcing them to cut back spending and/or raise taxes. In short, there is little direct relationship between the government's share of GDP and its impact on the economy.

 
The Post Hides Excessive U.S. Health Care Costs Print
Monday, 03 January 2011 05:54

The Post ran a major article telling readers that the value of the benefits they receive under Medicare will vastly exceed the taxes they paid into the program based on a new analysis from the Urban Institute. It then tells readers that many workers think that they paid for their Medicare benefits and:

"...that mistaken impression complicates the job for policymakers trying to build political support in the coming months for dealing with deficits that could drag the economy back down."

The idea that workers have paid for their benefits actually would be close to accurate if the U.S. health care system was anywhere near as efficient as the health care systems in other wealthy countries. The per person cost of care in these countries, all of which enjoy longer life expectancies than the United States, are less than half as much as in the United States.

It is great to see that the Post is worried that "mistaken impressions" by the public might complicate the work of policymakers. There are a whole set of mistaken impressions that it could try to combat rather than foster, starting with the idea that the budget deficit is somehow at the center of the country's economic problems. 

 
Robert Samuelson Trots Out the Second Great Depression Bogeyman Again Print
Sunday, 02 January 2011 22:15

The economy is doing well compared with the Great Depression, but not by any other measure. This is why Robert Samuelson and other spokespeople for the rich and powerful are so anxious to raise the prospect of the Great Depression. It implies that we should somehow be thankful for 9.8 percent unemployment, as he said in his column today. As informed observers know, this is a joke.

In a worst case scenario where the banking system did literally collapse, the Fed could have brought it back to life through its unlimited ability to print money. The first Great Depression was not the result of bad decisions at its onset. Rather it was the result of a decade of inadequate policy response. If the government had spent large amounts of money to boost the economy, as it finally did to fight World War II, the depression would have ended much sooner.

Samuelson uses the second half of his column to repeat Fox News talking points about how firms are not hiring because of concerns over the cost of the health care reform bill. If the Post required its columnists to have some evidence for its assertions Samuelson would have been forced to show that the firms most affected by the coverage requirement in the bill are more reluctant to hire than other firms. This would presumably mean that firms with just under or just over 50 employees are hiring fewer workers than other firms. This would be the case because almost all larger firms already provide health insurance for their workers and smaller firms will not be affected by the coverage requirements in the bill. Of course the data does not show any weaker hiring performance in firms of near 50 than in firms of larger or smaller size.

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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.

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