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David Brooks Takes Advantage of Affirmative Action for Conservatives Print
Friday, 27 August 2010 04:10

Suppose Paul Krugman or Bob Herbert got just about everything wrong in their columns on a regular basis. Suppose that they were not just wrong on peripheral matters, but on facts that were central to their argument. What would happen?

These progressive columnists would almost certainly be sent packing. There are plenty of smart articulate progressive writers. If these two couldn't get their facts right, the NYT would have no problem finding someone to replace them who could.

Apparently, the same does not apply to conservative columnists as demonstrated by David Brooks. He gets his facts wrong on a regular basis and not just on side matters. Often the mistake is on an issue that is the central point of his column.

He gave us a beautiful example today. He told readers that the United States had decided to go the big government route to recover from the downturn whereas Germany had gone the austerity route. Brooks tells readers:

"This divergence created a natural experiment. Who was right? The early returns suggest the Germans were."

He then points to Germany's 9.0 percent growth in the second quarter compared to the near stagnation in the U.S. economy.

Brooks is good enough to note that, "results from one quarter do not settle the stimulus/austerity debate," but let's ask if they show anything.

The chart below shows the OECD's estimates of real government expenditures for Germany and the United States since the third quarter of 2008.

germany-U.S._23832_image001

Yes, that's right. David Brook's austerity model has seen a sharper increase in government spending since the crisis than his stimulus model. This suggests that the Germany/U.S. comparison might be somewhat less compelling then he implies.

How long would Krugman or Herbert be working at NYT if they made mistakes like this on a regular basis?

 

 

 
The Plunge in July New Home Sales Was Not Due to the Expiration of the Tax Credit Print
Thursday, 26 August 2010 04:39

In an article reporting on the plunge in new home sales reported for July, the NYT wrongly told readers that "July was the first month that home buyers could no longer qualify for a tax credit of as much as $8,000, which analysts said may have contributed to the decline." The end of the tax credit was a major factor in the plunge in existing home sales reported on Tuesday, but not the drop in new home sales.

The existing homes series refers to the closings on existing home sales. These sales were typically contracted 6-8 weeks earlier. While the homes that were closed in June likely qualified for the homebuyers tax credit, this would not be true of the existing homes that closed in July.

However the new home sales refer to contracts signed for selling new homes. May, not July, was the first month in which contracts would not qualify for the tax credit.

 
When it Comes to Regulating Banks, Nothing Is Easy Print
Thursday, 26 August 2010 04:32
Good piece in the NYT about enforcing the Volcker Rule, which limits the extent to which banks can trade on their own account.
 
Stimulus Increased GDP by 4.5 Percent, Not Growth Print
Thursday, 26 August 2010 04:24

The copy editors at the NYT are apparently on vacation. The NYT told readers that: "the nonpartisan Congressional Budget Office (CBO) reported that the policies had lifted growth in the second quarter by up to 4.5 percent."

No, that's not quite right. CBO reported that the cumulative gain to GDP due to the stimulus by the second quarter of 2010 might have been as much as 4.5 percent. This does not refer to the growth rate in the second quarter itself.

 
NYT Ends Separation of News and Editorial Section in Attack on Social Security Print
Wednesday, 25 August 2010 14:46

The NYT has apparently decided to give up on the old-fashioned distinction between news and opinion. They recently ran a piece by Matt Bai insisting that there is no alternative to cutting Social Security to deal with the federal debt. The piece includes the bizarre assertion that Treasury bonds are "often referred to as i.o.u.’s."

This is, of course, absurd. The business pages of major newspapers are full of references to Treasury bonds all the time. The bonds are never referred to as "i.o.u.'s." The article then includes the bizarre assertion about government bonds that the only way for the government to make good on the bonds it has outstanding: "is to issue mountains of new debt or to take the money from elsewhere in the federal budget, or perhaps impose significant tax increases — none of which seem like especially practical options for the long term."

Bai's opinion is radically at odds with perceptions in financial markets. These markets view it as almost inconceivable that the government will not honor its bonds, which is why the interest rate on long-term bonds is near its lowest level in the last 60 years.

While presenting what is supposed to be a non-partisan view of Social Security, remarkably, Bai never once examines the program's finances nor the financial situation of the people who would experience the cuts that are being considered.  

 
CNN Money Wants You to Be Scared About the Deficit Print
Wednesday, 25 August 2010 14:13

How else can we explain the fact that in a country suffering from the worst unemployment crisis in 70 years, CNN Money headlines a piece: "America's Debt Crisis"? CNN Money probably does not have access to financial market information. Otherwise it would know that the interest rate on U.S. government bonds are near 60-year lows.

This suggests that financial markets are not at all worried about U.S. government debt. The debt crisis exists only in the heads of people who are either unaware of financial markets or who are trying to spread fear in order to get political support for things like cutting Social Security.

The piece notes the opposition of many groups to cuts to Social Security, but then tells readers that: "nonpartisan deficit experts say the debt trajectory for the country is so worrisome that nothing in the federal budget can be off the table. That includes Social Security, which will only be able to pay out roughly three-quarters of promised benefits to future retirees by 2037."

This might be true, but nonpartisan deficit experts also point out that if the United States fixed its health care system then it would have massive budget surpluses as far as the eye can see. Nonpartisan deficit experts also point out that Social Security payments are already relatively meager compared to what most other countries pay their retirees. Nonpartisan deficit experts also point out that most retirees have very little other than Social Security to support themselves. And, they point out that Social Security's shortfall can be relatively easily made up with revenue increases that are comparable to those put in place in the decades of each the 1950s, the 1960s, the 1970s, and the 1980s.

It appears as though CNN Money only spoke to nonpartisan deficit experts who wanted to cut Social Security.

 

 
House Republican Leader John Boehner Misses Investment Boom Print
Wednesday, 25 August 2010 04:50

That should have been the headline of an article reporting on Representative John Boehner's call for President Obama to fire his top economic officials. The article reports that Boehner asserted: "business operators around the nation were anxious about investing in an uncertain business climate given the new policies coming out of Washington. 'The prospect of higher taxes, stricter rules and more regulation has employers sitting on their hands.'"

The data show businesses are actually increasing investment at a rapid pace. Investment in equipment and software has risen at more than an 18 percent annual rate over the last three quarters. It is newsworthy that Mr. Boehner is apparently unaware of the most basic economic data, since he is making strong assertions that are clearly at odds with reality. Mr. Boehner's ignorance of the state of the economy should have been a prominent item in the news.

 

 
Economists With a Clue Were Not Surprised by the July Plunge in Home Sales Print
Wednesday, 25 August 2010 04:36

The Post told readers that the July plunge in existing home sales "was nearly twice as large as forecast." This is a case where the Post apparently relied on the views of incompetent analysts.

The 27 percent drop in sales is very much in line with what would have been expected given the sharp falloff in applications for purchase mortgages in May. The vast majority of people who buy homes need to get a mortgage. If they are not applying for mortgages, then the odds are that they are not buying a home. Given the 6-8 week lag between applying for mortgages and the closing of a home sale, it was entirely predictable that this plunge in sales would show up in the July sales data. 

The only surprising part of this picture is that professional economists somehow were surprised. Of course most of these people also missed the $8 trillion housing bubble.

 
Demand for Imports From China Isn't Affected by Their Price: It's Silly Season at the NYT Print
Tuesday, 24 August 2010 04:35

The NYT must be having a tough time getting material in the late days of summer. How else to explain an oped from Joseph Massey and Lee Sands that claims that imports from China, and apparently also imports from Japan, do not depend on their price. That's right -- all of you people who wasted time in economics classes where we taught that higher prices meant less demand, you can just forget everything you learned.

It turns out that if the good is imported from China or Japan, price just doesn't matter. We would all gladly pay twice as much for the clothes, steel, computers etc. from China or Japan, rather than buy a domestically produced item, even if it is now cheaper. In fact, we would buy the item from China or Japan even if imports from other countries are now cheaper -- price doesn't matter!!!!!

The authors of this piece apparently do not believe in inflation either. They told readers that the trade deficit with Japan  "hit an all-time high of $90 billion" in 2006, in spite of the fact that the yen had tripled relative to the dollar since the 70s. Those of us old-fashioned economics types would point out that the 2006 deficit was equal to about 0.6 percent of GDP. By contrast, in 1986, when the value of the yen was much lower relative to the dollar, the trade deficit with Japan was more than 1.2 percent of GDP.

For those who are concerned that the United States should be producing more here and creating jobs, Massey and Sands have the answer: we should follow the Obama administration's National Export Initiative and focus "on the 99 percent of American companies that do business exclusively within the domestic market."

That's a great idea. I can't wait until my corner gas station and neighborhood barbershop start exporting to China. Of course, these sorts of businesses are the vast majority of that 99 percent that focus exclusively on the domestic market. It will be interesting to see how the Obama administration gets them to shift their focus to exports.

Pieces like this can really make you hope for the end of summer.

 
Deflation and Waiting Consumers Print
Monday, 23 August 2010 08:11

The NYT had an article this morning warning of the dangers of Japanese-style deflation. While Japan has suffered from weak growth since the collapse of its stock and housing bubble, deflation has not been a serious factor in this weakness. Consumer prices in Japan fell in 6 of the 19 years from 1991 to 2008. The largest decline in this period was a 0.9 percent decline in 2002. (Japan's CPI fell by 1.4 percent in 2009 and is projected to do the same this year.)

The consequences of relatively low rates of deflation are minor. While the article asserts that deflation causes consumers to delay purchases this is implausible on its face. A 1.0 percent rate of deflation would mean that if a person delayed buying a $500 television set for 6 months, they would save $2.50. The gains from delaying smaller purchases would be proportionately less.

The problem facing Japan (and now the United States) is that it would be desirable to have a lower real interest rate. Since nominal rates cannot fall below zero, an inflation rate that is negative makes matters worse by raising the real interest rate. However, the fact that prices are actually falling is not important. The drop in the rate of inflation from 0.5 percent to -0.5 is no different in its impact on the economy than the drop in the inflation rate by 1.5 percent to 0.5 percent. Both are hurtful because they raise the real interest rate by 1.0 percentage point.

The article also wrongly asserts at one point that Japan is prevented from doing more stimulus because its debt is twice the size of the Japanese economy. This is not a constraint at present. The Japanese central banks hold close to half of the debt, so it does not impose a substantial interest burden on the country. Furthermore, markets are willing to buy government debt at extremely low interest rates, so there is little fear about default or inflation.

It is also worth noting that the Japanese central bank could adopt a policy of targeting a higher inflation rate, such as 3-4 percent. This course of action has been advocated by Paul Krugman, Ben Bernanke, and Olivier Blanchard, the chief economist at the IMF. An article that is ostensibly examining the options available to Japan's policymakers should have noted included this one.

 

 
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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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