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The Post Really Really Wants to Cut Social Security Benefits Print
Friday, 06 August 2010 05:06

The Post wants cuts so badly that they just can't resist using its news section to push its agenda. In an article on the release of the new trustees reports for Medicare and Social Security, the article notes the projected shortfall in these programs and then tells readers: "but Democrats and Republicans have disagreed about the best approach and shied away from the political pain of paring benefits for older Americans in the highly popular entitlements."

A serious newspaper would point out that both Democrats and Republicans have shied away from any changes that would substantially improve the financial health of Social Security. This would include measures like raising the wage cap on the Social Security payroll tax. It would also include raising the tax rate itself, which poll after poll has shown is more popular than cutting benefits. A serious newspaper would also point out that the projected shortfall is far in the future and that there is no obvious reason that Congress should take steps to address it any time soon. A fix comparable to the 1983 fix could be put in place in 2030 and leave the program fully solvent until close to the end of the century.

The piece should also have noted that the Medicare Trustees projections show that Congress just eliminated 80 percent of the projected shortfall in the Medicare program. If this proves accurate, then this would be an enormous accomplishment.

 

 
Inflation and the Credibility of Central Banks Print
Friday, 06 August 2010 04:51

The WSJ had a piece on the European Central Bank's (ECB) decision to buy a small amount of government bonds. It raises the question of whether this could jeopardize the ECB's credibility as an inflation fighter.

This is an interesting question. According to central bank folklore, credibility as an inflation fighter comes from being willing to impose a severe recession to squeeze inflation out of the system. Paul Volcker sits at the top in the Central Banker's Hall of Fame for his willingness to keep interest rates high through 1981-82 recession. The folklore tells us that we don't  want to lose this hard-earned credibility by allowing inflation to rise now.

It is worth noting that in its length and depth, the 1981-82 recession is being dwarfed by the current downturn. In other words, even if aggressive monetary expansion did lead to inflation that central banks subsequently felt necessary to rein in, the cost in terms of unemployment and lost output is likely to be less than we are now experiencing.

This should make more expansionary policy at present a no-brainer, but we have to remember, our central banks are run by people who could not see an $8 trillion housing bubble.

 

 
J.P. Morgan at Work Print
Friday, 06 August 2010 04:40
For those wondering what those Wall Street boys do to earn tens of millions a year in salary and bonuses, the NYT has part of the answer. The Wall Street boys rip off school districts and other governmental units who pay them high fees for creating complex financial instruments that they don't understand.
 
NPR Tells Listeners That House Prices Have Stabilized Print
Friday, 06 August 2010 04:11

This exciting tidbit was conveyed in the lead-in to a story on the failure of the Obama administration's mortgage modification program (HAMP). That is a surprising assessment given the fact that purchase mortgage applications have dropped by more than 30 percent from year ago levels since the end of the homebuyer's tax credit on April 30th. Unless 30 percent fewer people feel like selling their homes in 2010 than 2009 (a relatively weak period for house sales), then house prices will be headed sharply lower. (This is based on a complex technical process known as "supply and demand.")

The issue of the direction of house prices is actually very relevant to the topic. The housing bubble has not fully deflated in many areas of the country. This means that government efforts to keep people in their homes are likely to still leave many people underwater. In other words, by design, the Obama program will be paying servicers and investors money for mortgage modifications that still leave homeowners with no equity in their homes. This makes HAMP a good mechanism for getting money to banks, but a very way to help homeowners.

It is not possible to assess the merits of this sort of mortgage modification program without a serious assessment of the future course of house prices. NPR excluded such a discussion with the unsupported assertion in its lead-in.

 
WSJ Calls Social Security Surplus a Shortfall Print
Thursday, 05 August 2010 11:41

It's super silly season in Washington. The powers that be have decided that Social Security should be cut, so now anyone can say anything they want against the program, even if it is directly contradicted by the evidence.

In this spirit the WSJ told readers: "In 2010, Social Security expenditures will exceed receipts for the first time since 1983, the last time Congress enacted major changes to the program." This is not true. As trustees report clearly shows, the program is projected to have a surplus of almost $80 billion in 2010. It is true that tax receipts will be less than projected benefits, but that is not a relevant figure for the program since it also collects interest on the bonds held by the trust fund.

 

 
State Budget Deficits Are Due to Plunging Revenue, Not Higher Spending Print
Thursday, 05 August 2010 04:59
The Post should have reminded readers of this fact when reporting that: "Republican leaders criticized the package as a giveaway to labor and an undeserved bailout for profligate state governments." The package in question was a bill to provide additional funding for education and health care to states.
 
In Addition to Geithner, Republican Economists Also Argue That Tax Cuts Do Not Pay for Themselves Print
Thursday, 05 August 2010 04:37

The NYT discussed the Obama administration's plans to extend President Bush's tax cuts only for households earning less than $250,000 a year. The article also reported on Republican claims that not extending the tax breaks for the wealthy would hurt the economy. It concluded by telling readers that:

"he [Treasury Secretary Timothy Geithner] dismissed as “myths” Republican arguments that tax cuts pay for themselves, by bringing in new revenues from economic growth."

It would have been helpful to note that this is not just Secretary Geithner or the Democrat's view. It is the near unanimous view of every economist who has examined the issue, including Republican economists. For example, Douglas Holtz-Eakin, a prominent Republican economist who was the chief economic advisor to John McCain in his presidential campaign, examined this issue when he headed the Congressional Budget Office. He used a wide variety of models and found that in the most optimistic scenario additional growth could temporarily replace 30 percent of the lost revenue. (Even this increase would largely disappear in the long run.)

The treatment of the issue in the article may lead readers to believe that the question of whether tax cuts pay for themselves is one that is actively debated by economists. In fact, it has long been settled even if some Republican politicians choose to ignore the evidence.

 
The NYT Gives Track Records on the Oil Spill, Why Not on the Housing Bubble? Print
Thursday, 05 August 2010 04:16

In a discussion of the impact of the BP oil spill, the NYT qualified the estimates of the size of the spill from the National Ocean and Atmospheric Administration (NOAA) by telling readers that: "NOAA is the same agency that devised the early, now-discredited estimate that the well was leaking only 5,000 barrels a day, one reason some people distrust the new report."

This is useful information for readers, since the fact that the agency had previously been off by a factor of ten in its earlier estimate of the size of the spill might suggest something about its competence and/or its integrity. This is relevant to the credibility that should be assigned to new estimates from the agency.

In the same vein, it would be appropriate to report on the failure of individual economists or organizations, like Harvard's Joint Center on Housing, to notice the $8 trillion housing bubble, when discussing the current views on the housing market and the economy.

 
USA Today Does Its Homework on Stimulus Print
Wednesday, 04 August 2010 05:06
USA Today has a nice piece showing stimulus spending by state. It shows that there is no link between spending and unemployment, in large part because much of the funding goes through preset formulas that do not respond to current unemployment rates.
 
The German Unemployment Story is Better than the NYT Suggests Print
Wednesday, 04 August 2010 04:22

The NYT had an article about Germany's relatively healthy economy, which is now growing at a healthy pace largely as the result of a surge of exports. The article also notes the effectiveness of Germany's work sharing policy which provides tax credits to companies for shortening hours rather than laying off workers. This policy has been even more effective than the article implies.

While the article tells readers that Germany's unemployment rate is 7.6 percent, this is the German government measure. This measure counts people who want full-time work but only have part-time jobs as being unemployed. By contrast, the OECD's methodology, which is similar to the one used by the United States, shows a German unemployment rate of 7.0 percent, roughly the same as before the downturn.

 
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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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