Glenn Kessler used his Factcheck column to take Senator Barbara Boxer to task for giving the Democrats credit for the budget surpluses at the end of the Clinton administration. Kessler rightly points out that the spending cuts and tax increases put in place by the Clinton administration would not have moved the budget to a surplus had it not been for the boom that was driven by the stock bubble. I have made the same point in other contexts.

There is one important part of the picture that Kessler leaves out. In the 1995 projections that he cites, it was assumed that the unemployment rate could not fall below 6.0 percent. The idea was that in order to prevent inflation, the Fed would slam on the breaks by raising interest rates. This would slow growth and prevent the unemployment rate from getting or staying below this target unemployment rate.

The budget projections might have been right if someone other than Alan Greenspan had been at the Fed at the time. Greenspan, who is not an orthodox economist, decided to let the unemployment rate fall below the 6.0 percent target because he saw no evidence of inflation. He had to argue with the Clinton appointees to the Fed who wanted to raise interest rates to head off inflation.

It was really due to Greenspan's policies that the unemployment rate was allowed to fall to 5.0 percent and eventually to 4.0 percent as a year-round average in 2000. This allowed millions of people to work who would not have otherwise had a job. The tight labor market also allowed for large gains in real wages for workers at the middle and bottom of the wage distribution for the first time in a quarter century. Oh, and for the DC policy wonks, it also gave us a budget surplus.

Anyhow, if we want to give credit to someone for the budget surpluses at the end of the Clinton administration it really should be Alan Greenspan (who I trash every other day of the week). It was only because he was willing to ignore the dogma in the economics profession that we were allowed to see what the world looks like when we have something resembling full employment.

This one should be mandatory reading for reporters as well as anyone else who comments on the topic.

The NYT has a good piece on new research that finds employers are being far more selective in their hiring. The research finds that employers are willing to interview more people and take longer in the process now than in the past.

This research is very useful because it helps to explain a seeming anomaly in the data. There had been a clear rightward shift in the Beveridge Curve in recent years, showing that there were more job vacancies at the same level of unemployment. This would often be taken as a problem of structural unemployment. However, we don't see any of the other signs of structural unemployment, most importantly, major sectors of the economy with rapidly rising wages.

This research provides an alternative explanation. Because they are many qualified job applicants, firms can have the luxury of being selective. It is also likely that waiting will pay off, which is not likely the case in a period with low unemployment, where qualified applicants are few and far between.

This one also gives me some satisfaction since I had previously speculated that this could be the case.

I see that Brad has a post saying that the economy was adjusting nicely to the bursting of the housing bubble until the financial crisis set in. He notes that housing construction fell by 2.5 percentage points of GDP between 2005 and 2008. This was replaced by an increase in gross exports of 2.0 pp of GDP and increase in equipment investment of 0.5 pp. Everything was moving along nicely until the financial crisis in 2008.

I see things a bit differently. First, gross exports don't create jobs, net exports do. When we move an auto assembly plant from Ohio to Mexico, we are not creating additional jobs with the car parts exported to Mexico. That's intro textbook stuff. If we look at the net export picture, the gain is only about 1 pp of GDP. Furthermore, it is hard to see the improvement in the trade picture having gone very much further without a further decline in the dollar. (That was a possibility, but far from a certainty -- it depends on policy decisions elsewhere.)

The rest of the gap was made up by a surge in non-residential construction (can you say bubble?), which rose by more than 33 percent as a share of GDP, or more than 1 pp of GDP. This boom led to considerable overbuilding in retail, office space and most other categories of non-residential construction. Assuming the burst of spending in non-residential construction was another bubble, then the portion of the demand gap filled through this channel was destined to be temporary. It was inevitable that this bubble would also burst and we would need something else to make up the hole in demand.

The other factor in the mix is the drop off in consumption. Savings rates had been driven to nearly zero by the wealth created by the housing bubble. It seems to me inevitable that consumption would fall in response to the disappearance of this wealth. The financial crisis gave us a Wily E. Coyote moment where everyone stopped spending at the same time, but I would argue that this just brought the decline in spending forward in time.

The savings rate remains much higher today than at the peak of the bubble, although still low by historic standards. (It's currently around 4.0 percent, the pre-bubble average was over 8.0 percent.) We have two alternative hypotheses here. I gather Brad would say that people are spending at a lower rate because they are still freaked out by the financial crisis. I would argue that they are spending at a lower rate for the same reason that homeless people don't spend, they don't have the money.

Homeowners are down $8 trillion in housing equity as a result of the crash. I would expect that loss of wealth to have a substantial impact on their spending. I gather Brad does not.

[Correction: The earlier version said "net exports" in the first paragraph.]

As its readers know, the Washington Post really really wants to see big cuts in Medicare and Social Security and is happy to use its news pages to advance this agenda. In a budget piece today, it told readers:

"In a flurry of meetings and phone calls over the past few days, Obama has courted more than half a dozen Republicans in the Senate, telling them that he is ready to overhaul expensive health and retirement programs if they agree to raise taxes to tame the national debt" [emphasis added].

If the Post was not trying to push its Big Deal agenda, it would have told readers that Obama is willing to cut health care retirement programs. The issue here is reducing government payments, not changing the color of the forms used. It also would not use the adjective "expensive." While the country does pay a lot of money for Medicare and Medicaid, because it pays doctors and other providers much more than they get elsewhere, Social Security is actually relatively cheap compared to other countries' public pension programs.

Also, an objective newspaper would not have inserted the word "tame" since the data do not support the case that the debt is somehow out of control. The ratio of debt to GDP has been rising only because the collapse of the housing bubble led to a severe downturn. Had it not been for this downturn, the ratio would have fallen through most of the decade. The ratio of interest to GDP is near a post-war low.

The piece also asserts that:

"there was more skepticism of Obama’s motives"

among many Republicans. Of course the Post does not know whether Republicans really were skeptical of President Obama's motives, they just know that Republicans claimed to be skeptical. It is not good reporting to accept assertions from politicians at face value, since they are not always truthful. 

The most striking feature of the U.S. economy over the last three decades has been the upward redistribution of income. The top 1.0 percent of households has managed to pocket the vast majority of gains over this period. That is a sharp contrast with the three decades immediately following World War II when the benefits of much more rapid growth were broadly shared.

This pattern of growth might lead people to question the policies that have led to this upward redistribution (e.g. trade policy, labor policy, monetary policy, and anti-trust policy). In order to prevent such questioning and to further the process of upward redistribution many wealthy people have sought to focus public attention on programs that benefit the middle class and/or poor.

Peter Peterson, the Wall Street investment banker, has been most visible in this effort, committing over $1 billion of his fortune for this purpose. Recently he enlisted a group of CEOs in his organization, Fix the Debt, which quite explicitly hopes to divert concerns over income inequality into concerns over generational inequality. It argues that programs like Social Security and Medicare, whose direct beneficiaries are disproportionately elderly, are taking resources from the young.

It is easy to show the absurdity of this position. The amount of money that the young stand to lose from the upward redistribution of income is an order of magnitude larger than whatever hit to their after-tax income they might face due to the continuing drop in the ratio of workers to retirees. Also, older people generally have families. This means that when we cut the Social Security or Medicare benefits of middle and lower income beneficiaries, we are often creating a gap that will be filled from the income of their children.

Nonetheless, when you have a billion dollars to throw around, you will have plenty of people willing to argue absurd positions. Therefore, it is not surprising to see the Fix the Debt crew and various other Peterson derivative organizations pushing the line about generational conflict, but what is NPR's excuse?

The Federal Reserve Board disastrously missed and/or ignored two huge bubbles in the last decades: the stock bubble in the 1990s and the housing bubble in the 2000s. The collapse of both bubbles led to recessions from which it was difficult to recover. Neil Irwin inadvertently tells us today that the Fed is still utterly clueless when it comes to dealing with bubbles.

The problem is that, at least according to Irwin's account, no one at the Fed seems to understand how bubbles hurt the economy. On the one hand, he presents the views of Fed governor Jeremy Stein, a bubble hawk, who he tells us:

"argued in a Feb. 7 speech that there are already signs of overheating in the markets for certain kinds of securities, including junk bonds and real estate investment trusts that invest in mortgages. And if those or other potential bubbles get so large that if they popped the whole U.S. economy could be in danger."

By contrast we have Fed chair Ben Bernanke and vice-chair Janet Yellen, the latter of whom he quotes as saying:

"At this stage there are some signs that investors are reaching for yield, but I do not now see pervasive evidence of trends such as rapid credit growth, a marked buildup in leverage, or significant asset bubbles that would clearly threaten financial stability."

Unfortunately, the concern about financial stability and discerning bubbles in a wide array of economic data completely misses the point. First, financial instability is not what caused our problems in either 2001 or in the current downturn. As much fun as it is to see the Fed chair, Treasury Secretary and other important people sweating over the collapse of huge financial institutions, this crisis was very much secondary to the country's economic problems. We know how to paper over a financial crisis, which the Fed eventually did (as did the European central bank), the hard part is replacing the demand that had been generated by a bubble once the bubble has burst.

This directly leads to the second point. The bubbles that we have to worry about are not hard to find. Suppose there is a huge speculative bubble in soy beans that pushes their price to 20 times their normal level. This could be bad news for people that like soy beans and derivative products. It may also be disastrous for producers in the industry if they get caught on the wrong side of things. However, the collapse of this bubble will have minimal impact on the economy. If for some reason our bubble watchers at the Fed failed to notice the rise in soy bean prices, the problems caused by its eventual bursting will not sink the economy.

The Washington Post began an article on a meeting of the euro zone finance ministers by telling readers:

"European leaders demanded that euro members press on with budget cuts to end the debt crisis."

At this point there is overwhelming evidence that the primary effect of the austerity being demanded by the finance ministers is to slow growth and increase unemployment. As a result of the negative impact on output, the budget cuts lead to little improvement in the financial situation of the affected countries.

Since the evidence shows that the ministers' austerity agenda is not an effective way to deal with the debt crisis it is wrong of the Post to tell readers that this is the motive of the finance ministers. This assertion assumes that the finance ministers have no clue about the actual effect of the policies they advocate. While this may in fact be true, the Post certainly cannot claim to know that the euro zone's finance ministers are completely clueless about economics.

It would have been more accurate to simply report what the ministers claim, for example writing:

"European leaders demanded that euro members press on with budget cuts 'to end the debt crisis.'"

This would made have made it clear to readers that the rationale claimed by the finance ministers bears no obvious relation to reality.

That's what readers of Marc Thiessen's column on the sequester would conclude. Theissen repeatedly touts the report of the Bowles-Simpson commission. Of course there was no report issued by the commission because no report received the necessary majority. The Post's fact checkers would have quickly caught Thiessen's error and insist that he correct it, but such is the price of labor discord.

Thiessen's piece is also striking for the lack of concern for the people will lose their jobs as a result of slower growth that is resulting from his preferred policy. Presumably he does not imagine himself or his friends to be among the people who will lose jobs because of the policies he advocates.

It's extremely unfair that shoe salespeople have to pay taxes on their income at the same rate as other workers. After all, they must work with shoe buyers, achieve an alignment of interest, and then get them to buy the shoes. Clearly this means that they should be taxed at the lower capital gains rate rather than the ordinary earnings rate that factory workers and school teachers pay.

Yes, this is nuts, but because very rich people run pension and hedge funds, the NYT feels the need to treat this stuff seriously. Therefore it gave Steve Judge, the chief executive of the Private Equity Growth Capital Council the opportunity to say that shoes salespeople shouldn't have to be taxed at the same rate as everyone else. (Sorry, I meant rich equity and hedge fund managers.)

This one does not come close to passing the laugh test. The point here is very simple. When you get paid for work, whether you are school teacher, a shoe salesperson, or a hedge fund manager, this is earned income and should be taxed as such.

If hedge and private equity fund managers want to invest in their funds they are free to do so and can have their subsequent income taxed at the lower capital gains rate. This is really simple -- even a hedge fund or private equity fund manager should be able to understand this. It is not a complicated issue no matter how much people may get paid to make it complicated.

Note: Typo corrected, thanks Tom.