He presented a quote from Mario Draghi, the President of the European Central Bank:

"'The exchange rate is not a policy target, but it is important for growth and price stability. We want to see if the appreciation is sustained, and if it alters our assessment of the risks to price stability.'"

He then added:

"And with that, the euro fell more than half a percent against the dollar—even though Draghi was really more stating a fact from Economics 101 than signaling some major new policy plans by the central bank."

Actually the exchange certainly can and often is a policy target. There are many central banks, most notably China's, that quite explicitly target their exchange rate. Other central banks have often taken steps that clearly seem to have the purpose of raising or lowering the exchange rate, as was the case with this statement.

While a central bank can opt to ignore the exchange rate, that would be a specific policy decision. It is not a basic principle from economics textbooks.

An article on Hewlitt-Packard's decision to require suppliers in China to not use involuntary labor from students told readers:

"Enforcing workplace rules in China has always been difficult, as even Chinese laws on labor practices are flagrantly ignored by some manufacturers as they struggle to keep up with production demand amid labor shortages. The Chinese government announced last month that the nation’s labor force had begun to shrink slowly because of the increasingly rigorous one-child policy through the 1980s and 1990s."

In a market economy, firms that can't operate profitably paying the prevailing wage are supposed to go out of business. This is what happened to millions of small farms in the United States between 1860 and 1960. These farms could not afford to pay wages that were competitive with the wages that workers could get in manufacturing.

If the NYT were covering this process today presumably it would be complaining about the labor shortage resulting from the failure of people in the United States to have enough children. Of course to workers at the time this process implied an enormous improvement in living standards. The same will be the result of the news that the NYT seems to think is so dire, that China's labor force is now shrinking.

Robert Samuelson is looking at the latest projections for the budget and the economy from the Congressional Budget Office (CBO) and struggling with their implications for the deficit. He presents the three reasons that CBO gives for reducing the debt from the projected levels:

1) fear of financial crises;

2) crowding out of investment;

3) we may need to borrow more in the future to cover the costs of a war or natural disaster.

It's worth briefly addressing these concerns, but first we need to note that CBO's track record on the economy in recent years has been nothing short of abysmal. If you want some cheap fun, take a look at CBO's projections for the economy from Janaury of 2008 (Table E-1). Get a load of that 4.8 percent unemployment rate that we are supposed be enjoying right now following three years in which GDP growth averaged 3.3 percent (and that's with no recession in 2008-2009).

CBO's predictive ability had not improved much a year later when the economy was in the middle of the free fall following the collapse of Lehman. Its projections from March of 2009 hugely underestimated the severity of the downturn and projected that the economy would have largely bounced back to full employment by the end of 2011, even if there was no stimulus from the government or extraordinary measures taken by the Federal Reserve Board.

These projections were about as wrong as they could possibly be. We would have done every bit as well finding a drunk person on the street and asking him for his economic forecasts for the next five years.

The Washington Post, along with most other news outlets, reported without comment that the United States Postal Service (USPS) lost $15.9 billion last year. Some comment would have been appropriate since almost 70 percent of this shortfall is due to a payment of $11.9 billion to the postal workers' retiree health fund.

This is noteworthy because Congress has required that the Postal Service prefund its retirement fund at a level that has no match in the private sector. It also mandated that it build up to its targeted prefunding level in just 10 years making the burden much greater. In addition, the USPS is required to invest these funds, as well as its pension, exclusively in government bonds. In contrast, private sector competitors like UPS invest largely in equities which provide a much higher return on average. The result is to place an enormous burden on the Postal Service putting it at a serious competitive disadvantage. (Here's more on this one.)

Congress has put the Postal Service in an impossible situation. It has imposed restrictions, like the requirement that all assets in its pension and retiree health fund be invested in government bonds,that substantially raise its costs relative to competitors. It has also prohibited USPS from getting into new lines of business that take advantage of its resources in order to protect private sector companies from competition. However it still expects the USPS to be run at a profit.

Clearly the Post Service would face difficulties in any case as technology has led to a shift away from first class mail, the system's main source of revenue. However the restrictions that Congress imposes makes it impossible for USPS to adjust to changing economic conditions.

The NYT told readers that a widely expressed concern about losing jobs to "cheap foreign labor .... does not bode well for political support for an amnesty program now being discussed in Washington." It's not clear that this would be the case. One of the factors that reduces the wages of undocumented workers is their legal status. Undocumented workers are likely to get lower pay because they risk deportation if they try to unionize or take other measures to increase their wages and improve their working conditions. If U.S. citizens want to reduce the competition from undocumented workers then they logically should support measures that change their legal status so that they are in a position to increase their wages. 

The NYT reported on cuts in military spending that Secretary of Defense Leon Panetta said could happen if the sequester goes into effect on March 1. The NYT referred to these cuts as "forced," implying that they were required by the sequester.

This is not accurate. The sequester requires a cut in military spending of approximately 6 percent. The specific cuts chosen presumably reflects the fact that Mr. Panetta views the items to be the least important to the country's defense. Alternatively, it is possible that Panetta has decided to highlight possible cuts that would provoke the maximum political reaction. In either case the cuts were selected by him, they were not forced by the sequester.

The Huffington Post reported on a recent paper published by the St. Louis Federal Reserve Bank that produced evidence showing that patents impede innovation and growth. Maybe other news outlets will be allowed to talk about such isssues one day.

No, I am not kidding. Steven Davidoff has a DealBook column touting the fact that Hostess Twinkies are likely to survive as a product, even though the company that makes them has gone bankrupt. The Twinkie brand, along with other iconic brands owned by the company, will be sold off in bankruptcy to other companies who expect to be able to profitably market them. Of course there is no guarantee that they will restart the old factories and rehire the Hostess workers, likely leaving them out in the cold.

There are two major issues here. First, in the United States firms can in general fire workers at will. This means that if they can find workers elsewhere in or outside the country who will work for less, then they can dump their current workforce and hire lower cost labor. This happens all the time. Most other wealthy countries require some sort of severance payment to longer term workers, but the United States does not.

Bankruptcy only changes the picture in this respect in cases where you have union contracts, which was the situation with Hostess. Bankruptcy voids these contracts allowing the company to change terms of employment and discharge workers in ways that would have prohibited under the union contract.

The other issue with bankruptcy is that it eliminates the company's pension obligations. While pensions are guaranteed by the government, the guarantee is not 100 percent. This means that a bankrupt company can leave many workers with sharply reduced pensions. In principle the pension is supposed to be a privileged creditor, standing at the front of the line to get the proceeds from the sale of Twinkies and other brands. However, it doesn't always work out this way. It remains to be seen what the situation will be with Hostess.

One of the arguments that the Wall Street boys put forward to preserve their too big to fail subsidy from the government is that if we broke up the behemoth banks then big corporations would turn to foreign banks for many of their financial needs. The Post presents this assertion as a serious argument in a Neil Irwin column reporting on a paper arguing the case for big banks. 

It is difficult to understand why anyone should give a damn if corporations get financial services from overseas. We import clothes and steel, what's the problem if we import financial services? Maybe the Wall Street whizes just need a lecture on how free trade benefits everyone. Their argument that we should be concerned that we are importing financial services is probably less compelling than the argument that we should be concerned that we are importing clothes. (Do we really want to be like Ireland or Iceland with hugely out-sized banks that we are stuck bailing out?) Maybe if we can teach the Wall Street boys intro economics we will finally be able to break up too big to fail banks.

Currently net interest rate payments are 1.4 percent of GDP. The Congressional Budget Office (CBO) projects this will rise to 3.3 percent of GDP by 2023. This 1.9 percentage point rise in projected interest payments is by far the largest cause of projected increases in deficits over the decade. In addition, the interest refunded from the Fed to the Treasury is projected to fall by 0.3 percentage points, meaning that higher interest costs are projected to add a total of 2.2 percentage points to the deficit.

This rise is noteworthy because it is almost entirely due to higher interest rates rather than large debt, since the debt to GDP ratio is projected to be only marginally higher in 2023 than it is today. The projection of higher interest rates is in turn a projection about Federal Reserve Board policy. In other words, CBO projects that the Fed's decision to raise interest rates over the next decade will be the main factor pushing deficits higher.

The Post somehow missed this one.