Beat the Press

Fannie and Freddie's Losses Are Profits at Goldman Sachs

In a discussion of the future of Fannie Mae and Freddie Mac the Washington Post noted that the government had committed $125 billion to cover their losses. While the article reports that these losses have been a major political issue, it would have been useful to point out that the losses were, in effect, subsidies to banks. Fannie Mae and Freddie Mac buy mortgages in the secondary market. If they lose money it means that they paid banks more for these mortgages than they were worth. This overpayment is effectively a subsidy to banks who otherwise would have been left holding the mortgages on their books and likely would have incurred losses when they went bad. --Dean Baker

Eliminating Waste in Student Loans: Jobs at Risk

The NYT reports that opponents of a measure that would save money by putting private lenders out of the government guaranteed student loan business warn that it could cost jobs. This is of course true. Suppose there is an efficient computer company that sells computers for $500 each and an inefficient computer company that sell comparable computers for $1,000 each. It is likely that the inefficient computer company employs more workers for each computer produced than the efficient manufacturer. Therefore switching orders from the less efficient company to the more efficient company would cost jobs. This is effectively what is happening with the student loan program, except the more efficient provider happens to be the government. There is no more argument to obstruct this switch because of possible job loss than there would be to try to prevent people from buying goods from more efficient producers. This is economic growth. The people who lose their jobs should be reemployed where...

Protectionists Dominate Health Care Debate

Anyone seriously interested in controlling health care costs would be actively discussing alternatives to patent protection for financing the development of prescription drugs and medical equipment. Everyone who has taken even an intro economics class knows that there will be horrible waste and corruption when goods can sell for hundreds of times their competitive market price, as can be the case with prescription drugs and medical equipment. Those interested in controlling costs would also be actively seeking to promote international trade in medical services since the health care systems in other countries are so much more efficient than the U.S. system. Neither of these items even gets mentioned in David Leonhardt's discussion of the prospects for controlling health care costs. This is indicative of the incredible corruption of the public debate on health care reform. --Dean Baker

High Unemployment Is Due to Skills Mismatch: We've Heard This Before

The NYT reports that the Fed is debating whether much of current unemployment is due to a skills mismatch between workers and the available jobs as opposed to simply a cyclical shortfall in demand. It is worth noting that the assertion of skills mismatch is a predictable behavior of economists in policy positions in every recession. There were many papers arguing exactly this story after the last downturn as the economy continued to shed jobs for almost two years after the recession ended. --Dean Baker

NPR Still Hasn't Heard About the Housing Bubble

Morning Edition introduced an interview with George Soros by saying that the United States is still recovering from a financial meltdown. This is wrong. The reason that we have near double-digit unemployment is that we had an $8 trillion housing bubble that collapsed. The financial crisis was secondary. This is best demonstrated by countries like Spain. Even though it has a relatively well-regulated financial system, and therefore did not have a financial crisis, its unemployment rate is 19 percent. Spain's problem was that it had a horrific housing bubble. It is not easy for an economy to recover from the distortions created by such asset bubbles. NPR missed the bubble as it grew. It apparently still does not recognize what has happened to the economy. --Dean Baker

NYT Wastes Readers' Time In Article on Global Warming and China and India

The NYT reported that China and India both signed an agreement to limit their greenhouse gas emissions. The article cites unnamed analysts who complained that the new commitment by China and India falls short of the terms of the agreement. The article neglected to mention that on a per person basis China emits about one quarter as much greenhouse gases as the United States, while India emits around one-eighth as much. It is impossible to understand these countries' positions on this issue without recognizing how much less they contribute to global warming than people in the United States. They will not agree to permanently hold their emissions below U.S. levels without compensation and the U.S. lacks the ability to force them. In other words, people who care about global warming should want the U.S. to pay China and India to limit their greenhouse gas emissions. Those who don't want to see such transfers are just wasting everyone's time. --Dean Baker

Good News: Job Openings In January Almost Up to February 2009 Level

Yep, the good news according to the headline of the USA Today article is that the Bureau of Labor Statistics reported that job openings in January were at their highest level since last February of 2009. That would be the month when the economy lost 726,000 jobs. The numbers are going in the right direction -- it's good to see the number of job openings increase. And the number of layoffs and discharges fell to 1,890,000, the lowest level since April of 2008, a month when the economy shed 149,000 jobs. But we still have a long way to go before we are going to see healthy job growth. These numbers must be put in context. --Dean Baker

The Post Give Dana Milbank an Opportunity to Show That He Knows Zero Economics

Those who favor affirmative action for people with no discernible skills undoubtedly appreciate Dana Milbank's page 2 column in the Washington Post. Today Mr. Milbank used his column to tell the world that he knows absolutely nothing about economics. The theme of the piece was that in ten years the United States will be like Greece. He discusses the trip to the United States of Greek Prime Minister George Papandreou seeking support for his country during its current fiscal crisis and tells readers: "if current trends persist, an American president will be doing the same thing in about 10 years." The article goes on: "He or she will probably be in Beijing, asking for more favorable interest rates or pleading with the Chinese government to keep speculators from betting on an American default." Okay, now let's imagine that Milbank had taken an econ class at some point. Suppose speculators were betting heavily against the dollar. The value of the dollar would be plummeting. If China still...

What Is "Heavy Investment" in Education, Clean Energy and Scientific Research?

In an article about the increasing number of people receiving long-term unemployment benefits the Post told readers that to have a labor force suited for the jobs of the future: "the Obama administration has tried to address that by investing heavily in education, clean energy and scientific research." Actually, the Obama administration's investments in education almost certainly don't even offset the state and local cuts in spending forced by the recession. Its heavy investment in clean energy and scientific research is dwarfed by its spending on the war in Afghanistan. --Dean Baker

Instant Lie Detector Test: Small Business Hiring Delayed by Uncertainty

There is a line being pushed by some on the right (e.g. David Brooks today ) that small businesses are putting off hiring because of uncertainty over the costs they may face from health care reform, global warming restrictions, or other tax and regulatory changes. It is understandable that small businesses would be reluctant to commit themselves to having another employee on the payroll if we were in a country like Italy or Spain where permanent employees have a substantial degree of employment protection. Employers in these countries (and most other wealthy countries) cannot simply lay off workers any time they choose. However, if we live in the United States, we know that employers here can lay off anyone they want, any time they want, with no restrictions whatsoever. This assumes that there is not a union contract, which is the case for 93 percent of private sector employees and close to 100 percent of employees of small businesses. Suppose that we have a conscientious small...

WSJ Gets Carried Away With Optimism on Jobs

I was one of the economists who thought the February jobs report was relatively good given the weather. Still, that was only compared with an expectation of a very bad report. The WSJ went a bit overboard with a headline: "Outlook Brightens for Jobless." The report still showed a loss of 36,000 jobs. It is certainly possible that if we remove the effect of the weather, that the number would have been a small positive, but this is nothing to write home about. The economy has to generate about 125,000 jobs a month just to keep even with the growth of the labor force. No one thinks the economy would have created that many jobs in February even if the weather had been great. Given the severity of the downturn, we should be seeing job growth in the neighborhood of 300,000 to 400,000 a month. There is no plausible story that gets us there any time soon. And, there are many downside risks with the withdrawal of supports for the housing market, state and local government cutbacks, and the...

Will Millennials Suffer Because Retirements Create Job Openings for Them?

Robert Samuelson argues that they will . Samuelson apparently believes that people's standard of living is determined only by their tax bill. According to Samuelson's world view, Bill Gates is much worse off than the typical middle class family because he pays so much more in taxes. Of course in real world land, well-being is determined by after-tax income. The greater sum that Bill Gates pays in taxes is trivial compared to his enormous income. The same story applies for the millennials. The projections from the Congressional Budget Office, the Fed and all other standard sources show that before-tax compensation will rise on average at the rate of about 1.4 percent a year. This means that after 20 years their compensation will be more than 30 percent higher than what workers get today. This means that even if they pay substantially higher taxes than workers today, they will still have substantially higher living standards. The retirement of the baby boomers is likely to help...

Car Complaints by Company: Bad Numbers at the NYT

The NYT has a piece discussing efforts by Ford and GM to improve their quality. There is a chart accompanying the article showing the trend in complaints for the three automakers over the last decade. It shows a sharp drop in complaints by model year for both Ford and GM, while the numbers for Toyota remain almost flat. The picture is somewhat distorted since it doesn't take account of sales. GM and Fords sales both fell by roughly one-third over this period, while Toyota's doubled. This means that Toyota also saw a sharp fall in complaints per vehicle, while the declines on a per vehicle basis for Ford and GM are not as steep as indicated by the graph. --Dean Baker

Missing the Story on Iceland: Can the Bankers Steal Your Kids' Money

The NYT's piece on Iceland's referendum on using public money to pay debts to foreign bank depositors failed to explain the real issues involved. During the boom, several Icelandic banks courted deposits outside the country, mostly in the UK and the Netherlands, by offering higher interest rates. The banks then used these deposits to finance a range of highly speculative investments. As long the bubbles kept expanding, this model was hugely successful. However, when the bubbles burst, the value of the banks' assets collapsed and they had no ability to repay their depositors. This would have all been a private matter, except that the government insures bank deposits up to a certain level (like the FDIC in the United States). Iceland, as a matter of its treaty obligations with the European Union, is obligated to maintain a system of public deposit insurance which applies to both domestic and foreign depositors. The issue here is whether private banks can effectively create enormous...

How Does Being "Anti-Free Trade" Distinguish Anyone in Congress?

Just about every member of Congress supports protecting one or more domestic industries from foreign competition. For example, no member has publicly endorsed opening up our health care system to greater international competition. Therefore, describing a member of Congress as "anti-free trade" is misleading since the description would apply to every member of Congress. In describing Representative Sander Levin, the interim chair of the House Ways and Means Committee, as "anti-free trade, " the Post just means that he is opposed to trade measures that it supports. --Dean Baker