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House Prices Still Have More to Fall, Deal With It Print
Friday, 03 September 2010 04:35

The NYT has long opposed agricultural price support programs. Ironically it supports house price support programs. It seems to want the Obama administration to take further steps to keep the housing bubble from deflating.

The basic story is that house prices are still 15-20 percent above their trend level. These prices seem relatively affordable given the extraordinarily low interest rates in the market at present. However, if we think that interest rates are a major determinant of price, then we must believe that prices will plummet if interest rates return to a more normal level.

Sound housing policy would accept the fall and focus on helping homeowners facing the loss of their home. It would not try to perpetuate the bubble.

 
David Brooks Is So Cute When He Tries to Do Economics Print
Friday, 03 September 2010 04:06

Economics isn't that hard, but David Brooks seems to have trouble with it. He thinks everything would have been different if President Obama had pushed through a $713 billion stimulus that was centered on cutting the payroll tax, had pushed through an infrastructure bank instead of his pork barrel projects, and had focused on getting an energy bill rather than a health care bill.

There is no way of knowing how the politics would have played out, but in terms of the economics, it is difficult to see how Brooks' stimulus would have left us in a different place than the Obama stimulus. With stimulus, size does matter, and Brooks is basically talking about a stimulus of roughly the same size as the one President Obama got through Congress.

Payroll tax cuts are relatively progressive (the tax is regressive), so a cut has a fairly high multiplier since most of the money will be spent. Mark Zandi estimates the multiplier on these cuts at 1.3. This is better than for most tax cuts, but less than the 1.7 multiplier estimated for food stamps, the 1.6 for unemployment insurance benefits or infrastructure spending and the same as the 1.3 estimated for aid to state and local government. 

This means that if we compare David Brooks stimulus with President Obama's stimulus of roughly the same size, we should expect it to have roughly the same impact on the economy. President Obama's stimulus included some items that would be expected to have more impact (UI benefits and food stamps), and some that would have about the same impact (aid to the states and his own payroll tax cut, which was called "Make Work Pay"), and some that would have less impact if we include the alternative minimum tax fix as part of the stimulus.

As a result, if President Obama had done the David Brooks stimulus we should expect the unemployment rate to be around 9.5 percent, rising to 9.8 percent this morning, and headed to above 10.0 percent by the end of the year. I can't answer whether this would have made President Obama more popular than he is now.

 

 
The Washington Post Gets Out the Pom Poms Print
Thursday, 02 September 2010 05:14
Unfortunately, I am serious. It has a news article in today's paper with the headline: "five reasons for economic optimism." Real newspapers don't run pieces like this as news stories.
 
Is the Washington Post a Serious Newspaper? Print
Thursday, 02 September 2010 05:01

The Post seems to be claiming otherwise in an article that begins with the sentence: "will the U.S. government ever default?" The Washington Post editorial section has been near hysterical in its screaming about budget deficits for most of the last decade. In fact, it was so out of bounds in its rants that it found no space in either its news or opinion section for warnings about the $8 trillion housing bubble. Of course the collapse of this bubble led to the worst economic downturn in 70 years -- and sent the deficit soaring.

It is also worth noting that IMF completely missed the housing bubble and failed to warn of the imminent danger that it posed to the United States and other countries. No one at the IMF was fired over this failure and there has been no major restructuring of its staff, so there is little reason to believe that its understanding of economics is any better or its advice more accurate today than it was in the years before the bubble burst.

Of course the basic hypothesis is silly on its face since the United States issues debt in dollars. It can print as many dollars as it needs to pay off its debt. This could create a risk of inflation, but it rules out the possibility of default. Serious economists and reporters understand this simple point.

 
Effectiveness of the Stimulus: Washington Post Has Not Heard of the Congressional Budget Office Print
Thursday, 02 September 2010 04:37

Apparently word of CBO's existence has not made its way to Fox on 15th Street. How else can we explain the Post's failure to mention CBO's analysis of the impact of the stimulus in an article reporting on a speech by Christine Romer, President Obama's departing chief economist?

The article reported Romer's view that the stimulus helped keep the economy from sliding into a depression and that additional stimulus would boost growth. It then tells readers that Republicans oppose additional stimulus and "argue that Democrats have run up record budget deficits without improving the economy."

This is where a serious newspaper would report the assessment of the stimulus by independent analysts, most obviously CBO. In an analysis released last month CBO estimated that the stimulus increased output by between 1.7  percent and 4.5 percent. It also calculated that the stimulus lowered the unemployment rate by between 0.8 and 1.7 percentage points. In other words, the CBO estimates imply that unemployment would be between 10.3 percent and 11.2 percent today without the stimulus. This would have been useful information to provide readers.

 
Who Are You Going to Believe, the IMF or Your Lying Eyes? Print
Wednesday, 01 September 2010 20:39

The NYT reports on a new set of papers from the IMF, one of which warns that many wealthy countries, including the United States, are very close to the limit of their ability to increase their national debt. It is worth noting that this paper's methodology indicated that Japan and Italy were already well above the limit of their ability to take on debt.

The financial markets apparently assess the situation differently than the IMF since both countries are still able to issue long-term debt at very low interest rates. The fact that the methodology is apparently quite wrong in predicting the situations faced by these two countries might suggest that it is not a very useful methodology for guiding U.S. policy.

It is also worth noting that IMF somehow did not see the $8 trillion housing bubble that wrecked the U.S. economy, nor the bubbles in Spain, Ireland, and the U.K. There have been no obvious changes in the IMF's structure that would lead one to believe that it is better at assessing economic prospects today than it was three years ago.

 
Nonsense on Hiring, Taxes, and Regulation Print
Wednesday, 01 September 2010 05:20

Fool or Liar? That is the question that should be posed of anyone who says that companies are not hiring because of concerns about taxes or regulations.

Exhibit A, the only one necessary to prove the case, is that there has been no unusual increase in average weekly hours. There is some uptick from the low-point of the downturn, but nothing unusual for an upturn, and we are still far below average weekly hours from before the recession.

 
The Washington Post Exonerates Moody's Print
Wednesday, 01 September 2010 05:07

The first sentence of a Washington Post article on the decision by the SEC not to pursue legal action against the company told readers that the rating agency "misjudged" many securities that subsequently plunged in value. This assertion is exactly what is in dispute.

The rating agency clearly mis-rated many securities, giving investment grade ratings to issues that were clearly junk, at least in retrospect. The question is whether the erroneous ratings were honest mistakes -- misjudgements -- or whether they were due to fact that Moody's knew that issuers wanted investment grade ratings and would not hire them in the future if they could not be relied upon to produce such ratings. The Post has somewhere determined that Moody's just made honest mistakes and told readers so in the very first sentence.

 
Washington Post Reports that Spain Claims World Cup Victory, but Netherlands' Fans Contend Their Team Won Print
Wednesday, 01 September 2010 04:52

This would no doubt be how the Washington Post's economic reporters would have covered the World Cup final. They would not have bothered to tell readers that Spain in fact did win the World Cup, regardless of what the Netherlands' fans claim.

This comes up in the context of the impact of the stimulus where the Post treats us to a he said/ she said. The Post has a quote from an economist at the Center on Budget and Policy Priorities who says the stimulus was a good idea and helped the economy. It also features a quote from an economist at the CATO Institute who says that it didn't help the economy and just added to the debt.

Maybe we could check with the ref. The Congressional Budget Office says it increased GDP by between 1.7 percent and 4.5 percent. They also calculate that it reduced the unemployment rate by between 0.7 and 1.8 percentage points. Private forecasters, such as McCain economic adviser mark Zandi, come up with similar estimates. This would have been useful information to include in this article.

 
Washington Post Froths Over Deficits Again Print
Tuesday, 31 August 2010 06:56

This time it is in UK. It begins an otherwise good article about how proposed budget cuts will disproportionately hit women with the line: "as Britain prepares for the deepest budget cuts in generations to tackle a crippling mound of public debt."

How has it been determined that Britain faces a "crippling mound" of public debt? Certainly the markets have not made this determination since they are still willing to lend money to the UK at very low interest rates. This is simply the view of the writer and or editor, not a fact in the world.

A real newspaper would write: "as Britain prepares for the deepest budget cuts in generations to reduce its public debt." This increases accuracy and saves words.

 
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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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