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Home Publications Blogs Beat the Press Washington Post Pushes Myths on the Economy

Washington Post Pushes Myths on the Economy

Saturday, 03 July 2010 07:30

In its article on the June job numbers the Washington Post told readers that:

"the chances of a strong, self-sustaining expansion that can significantly improve the job market -- which seemed a real possibility during the spring -- are now slim"

It is not clear who saw a "strong, self-sustaining expansion that can significantly improve the job market" as a real possibility in the spring. Certainly the Obama administration did not, nor did the Congressional budget office. Both projected very slow growth that would leave the unemployment rate above 9.0 percent by the end of the year. Most private forecasters had similar projections. The Post does not identify anyone who had a more optimistic assessment.

The article then asserts, with absolutely zero evidence, that ambiguity about the economic situation is responsible for the gridlock in Congress over further stimulus:

"The confused outlook is causing paralysis on Capitol Hill, since the recovery is neither strong enough to provoke a turn toward deficit reduction, nor weak enough to lend momentum to President Obama's push for more economic stimulus. As Congress prepared to leave town for the week-long Fourth of July break, even funding for the wars in Iraq and Afghanistan was bogged down by the broader election-year squabble over spending"

This statement implies that if the data showed a weaker economy that the Republicans and Blue Dog Democrats, who are currently blocking stimulus spending, would somehow be more supportive of it. The article includes no statements from any of these members of Congress or anyone connected with them in any way that would support the claim that their votes on stimulus would change if the economy was weaker. The view that their votes on stimulus are responsive to the state of the economy is entirely an invention of the Post.

The article then presents events that were 100 percent predictable as surprises:

"In recent weeks, every pillar of the economic recovery that started a year ago has showed signs of weakening. Manufacturers had been cranking up production -- but now their inventories are largely rebuilt, and they are expanding more slowly. The housing market was recovering as well -- until the end of a federal tax credit for home buyers this spring."

Economists knew that the cycle of inventory rebuilding would come to an end. That happens in every recovery. They also knew that housing demand would fall after the expiration of the tax credit. The tax credit pulled purchases forward meaning that there would be fewer homes bought after it expired than the underlying trend and many fewer than during the period where the credit was in place. No remotely competent analyst could have been surprised by this falloff.

The article goes on to explain the lack of hiring as being due to a lack of confidence on the part of businesses:

"Increasingly, it appears that those months were an aberration and that businesses are too fearful to begin a hiring binge.

'People are still really cautious, and we haven't seen small businesses engage in any substantial way,' said Roy Krause, chief executive of SFN Group, a large employment-services company. 'I don't have any real indicator that would tell you things are going to accelerate faster than they're currently going.'"

A major problem with the fearful business explanation for the lack of hiring is that the average workweek fell in June (as noted in the article). Presumably firms are not cutting hours out of fear, but rather due to a lack of demand. If firms were not hiring because of fear, then we would expect to see hours per worker increase, as firms worked their current workforce harder in order to avoid hiring more workers. Since the opposite is happening, we can assume that the explanation for weak hiring is lack of demand, not fearful employers.

Comments (8)Add Comment
written by diesel, July 03, 2010 10:37
The spinmeisters at work. Write the implausible as though it were fact and people will repeat it as such. Do we have a label for tense or voice that describes this "transformative" pattern of speech?

Answer to JoeK. Which is more powerful, the magical thinking propounded by the writers of the article referred to above, or the truthful critique offered by the relatively powerless individual? Doesn't the historical record indicate that taking the path advocated by the clique backing the writers of the WaPo article, will likely result in the disintegration of the very system that has provided the means for their ascendency? Put another way, can a society survive in which the ruling party consistently blames that society's problems on the powerless? After all, the powerless, by definition, cannot solve the problem. And if the powerful will not acknowledge that they themselves are the cause of the problems, the problems won't get fixed.
written by Queen of Sheba, July 03, 2010 4:17
I am not a fan of the idea that business people would make the best politicians because "they know what it takes to run a company." As a business owner who had a father in politics, I can tell you that being a legislator or the head of the executive branch of government, at least in a democracy, is nothing like running a business (which Meg Whitman will find out immediately if she's elected governor of CA).

As a business owner I can order an employee to do something, and he will do it or I'll fire him. If my management team tries to "filibuster" or water down my business plan I can fire the lot of them and blackball them in the industry or subject them to "retraining" until they agree with me.

But sometimes I think our "leaders," as well as their minions in the press, need at least some knowledge of what is necessary for a business to be successful - any business that needs to sell a product or service to survive.

The basic need is customers. Without customers, it makes no difference what politicians do about regulating your industry or adjusting your taxes. Customers = demand for products and services. If there is falling demand, a business owner won't be hiring new employees, even if the government rescinds every regulation and grants tax credits for every dime of taxes the company will owe.

I believe the legislators are talking about "ambiguity" and "confusion" in the business climate, and the Post and other publications are parroting the meme, because the legislators want to believe that they can do something on the cheap that will solve the unemployment problem. Not that tax cuts or credits are cheap when considering their impact on the budget, but it keeps the legislators from having to listen to the bond vigilantes rail against a growing deficit or, worse yet, vote for a tax increase.

I don't think either the legislators or the political reporters want to admit that the problem is something as simple as a lack of demand, which will not return until the unemployed start being hired and those who still have jobs can move past the fear that they may lose their jobs tomorrow. Admitting the problem is so simple requires our "leaders" to effect a real, workable solution, which is not so simple at all.
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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.