Today is the last day that Beat the Press will be appearing on The American Prospect's website. You'll have to go to Beat the Press' new home page (or new RSS feed) from now on to read it.

Thanks again to TAP for hosting BTP and exposing it to its well-informed and thoughtful readership over the past four years, as well as for graciously redirecting readers to BTP's new page. I hope you will continue to check in at TAP for the important perspective that it provides.

--Dean Baker

That might have been a good question for reporters to address when they reported on the February trade data released yesterday. The data showed that royalties and licensing fees had increased by $883 million from January, a rise of more than 40 percent.

This has occasionally happened in prior months and presumably reflects one-time payments to a producer or set of producers. However, this was a big part of the $2.8 billion rise in the overall trade deficit from January and it deserved some mention in the coverage of the February data.

--Dean Baker

That's effectively what the Washington Post told readers in another front page editorial highlighting the need for deficit reduction. The article said:

"But by suggesting the deficit may have peaked, administration officials are taking a political gamble. If the favorable number does not hold up in coming months and the budget shortfall surpasses the $1.4 trillion recorded last year, voters in the November midterm elections could punish the Democrats for offering false hope."

That's a great story. Is it plausible that even 1 percent of voters are going to have any clue as to whether this year's deficit is marginally higher or marginally lower than last year's deficit? Is there any reason that anyone should care? Is there any evidence that this will influence their vote in an environment where they are concerned about their jobs and their homes?

In the Post's dreams maybe, but not on this planet.

--Dean Baker

A new Pew poll of reporters and editors found a great deal of pessimism about the prospects for the newspaper industry. At one point, the article reports the poll's finding that: "about three-quarters of the editors who took part said they would have serious objections to accepting direct support from either the government or interest groups, and a similar number said their organizations had not seriously thought about taking donations from nonprofit groups."

Of course there are other ways in which new media can be supported. Currently the government supports newspapers by granting them copyright monopolies. Without this special protection anyone would be able to use content without paying for it, including for commercial purposes. So these editors are already taking government support, even if they don't realize it.

In the Internet era this mechanism of financing newspapers is obviously no longer adequate. It is striking that Pew failed to consider any of the obvious alternative mechanisms in its poll. The article could have also discussed such alternatives.

--Dean Baker

In an article reporting on the debate over extending unemployment insurance benefits the Washington Post told readers: "on Wednesday, Federal Reserve Chairman Ben S. Bernanke warned that growing budget deficits imperiled the economy's long-term stability."

It is worth noting that in his capacity as a Federal Reserve Board governor from 2002 to 2005, chief economic adviser President Bush, and then Fed Chair since January of 2006, Bernanke never raised any concerns about the housing bubble and the threat it posed to the economy. Based on this history, readers may question Mr. Bernanke's ability to assess threats to economic stability. The Post should have informed readers of Bernanke's record on this issue.

--Dean Baker

Paul Krugman asks in his column this morning why Texas managed to largely escape the worst of the housing bubble while Georgia leads the country in the number of failed banks. Both are states in which the major cities have relatively few zoning restrictions or natural barriers, which allows for easy sprawl to meet new housing demand. Krugman explains the difference by the better consumer protection legislation in Texas.

While this may have played a role, it is important to note that Texas had just been through a boom/bust cycle in the 80s. The state was at the epicenter of the S&L crisis. Land prices had soared with the oil boom at the start of the decade, but then collapsed along with the price of oil in the middle of the decade. Texas bankers who had lived through this experience might have had more realization that house prices could fall than bankers in other parts of the country. Of course, the experience of a recent boom and bust cycle did not affect in slowing the bubbles in either southern California or Colorado.

--Dean Baker

Those are the questions that readers of the WAPO's Sunday Outlook section must be asking. The Post told readers that: "this year, China's economy is expected to produce about $5 trillion in goods and services. That would put it ahead of Japan as the world's second-biggest national economy, but it would still be barely one-third the size of the $14 trillion U.S. economy."

This reflects China's GDP measured on an exchange rate basis. However, economists typically use purchasing power parity measures of GDP for international comparisons. By this measure, China's economy is expected to be about $9.5 trillion this year. At its current growth rate, it will pass the size of the U.S. economy in about five years.

By many measures it is already larger than the U.S.. For example, it has more Internet users, college graduates in science and engineering, a larger car market, and about twice as many cell phone users.

The article also tells readers that the exchange rate will not have much impact on the trade deficit with China. Virtually all economists believe that an increase in the price of imports from China by 20-30 percent would substantially reduce imports. it is not clear why the author of this article believes otherwise.

--Dean Baker

The NYT notes that interest rates have recently risen and are generally predicted to continue to rise. It then told readers: "That, economists say, is the inevitable outcome of the nation’s ballooning debt and the renewed prospect of inflation as the economy recovers from the depths of the recent recession."

Okay, what are they smoking there? We have just been through a period of extraordinarily low interest rates. Interest rates fell to their lowest levels in more than 50 years. This was a deliberate policy response to the worst downturn since the Great Depression. Once we are out of the worst of this downturn, everyone expected that interest rates would rise even if we had a balanced budget and moderate inflation, the latter of which is predicted by almost all economists.

In other words, the standard projections from the Fed, the Congressional Budget Office and most private economists is that interest rates will be rising to normal levels from very low levels. Almost no one is projecting soaring interest rates in response to "the nation’s ballooning debt and the renewed prospect of inflation." This is the invention of the NYT.

--Dean Baker

This would have been a better headline for the Washington Post article on the testimony before the crisis commission of Fannie's former chief executive as well its top regulator. The discussion before the commission was apparently whether Fannie and Freddie were motivated by profit when they moved into Alt-A mortgages in 2005 and 2006 or whether they were trying to fulfill their mission of increasing homeownership.

While there may be some debate over individual motivations, the obvious point that apparently went unmentioned in this article was that if the executives at Fannie and Freddie were not totally clueless about the housing market, they would have been cutting back on buying mortgages altogether in 2005 and 2006, when house prices were at levels badly inflated by the bubble. It was guaranteed that prices would drop and a high percentage of even traditional prime mortgages would go bad.

In this environment, the responsible route for Fannie and Freddie would have been to only issue mortgages that could be justified by appraisals of rental values. If a house price exceeded a multiple of 15 of its appraised annual rent, then F&F should not have purchased it. This action, along with its public justification by F&F executives and economists, likely would have had a substantial impact in dampening the bubble. This action would have best filled both the institutions' responsibility to promote homeownership and also likely kept them out of conservatorship.

Fannie and Freddie's executives should have been questioned on why they did not see the bubble. This was their biggest failing in the crisis. After all, these are both huge institutions and housing is all they do. The commission failed badly in its task and the inept reporting helped to conceal the commission's failure.

--Dean Baker

We need reporters to do this? In the course of the report NPR assured listeners that there was nothing that could be done about AIG's explosive issuance of credit default swaps (CDS) because it was an insurance company that operates in hundreds of countries. And furthermore, the federal government doesn't even regulate insurance, states do.

Did this mean that the Fed could do nothing if it chose? Where were the statutory powers that allowed the Fed to arrange the unraveling of the Long-Term Capital Hedge Fund? Neither NPR's reporters nor anyone else would be able to find any statutory authorization for this action. The Fed used its authority and its ability to threaten non-cooperative actors to force most of the major banks to join this effort.

In the same vein, if it had decided that the issuance of trillions of dollars of CDS by AIG was a problem, there were certainly steps it could have taken. For example, it could have told the major banks that they should not be buying CDS from AIG. The Fed is also allowed to talk to other regulatory agencies, like the state insurance agency in NY, which would have had authority over much of AIG's activity. The Fed opted to do nothing in this case because it did not want to do anything, not because it lacked the ability to restrain AIG.

The piece also absurdly claims that the bills before Congress will take care of the problem of "too big to fail" banks. Few analysts would agree with this assessment. The bills leave in place huge financial conglomerates that would be extremely difficult to unravel in the event of a financial crisis.

Listeners would be better served if NPR focused on making the issues surrounding the bill understandable rather than spending its brief news time telling its audience how complicated it is.

--Dean Baker

The Washington Post (a.k.a. Fox on 15th) feels so strongly that we should reduce the budget deficit that they ran yet another front page editorial on the topic. The piece told readers in the second paragraph:

"This mounting government debt poses a painful choice for developed countries such as Britain, Japan and the United States: either a deep reordering of public expectations about everything from the retirement age to tax rates, or slower growth as record levels of borrowing crimp economic activity."

Well, that's pretty clear. The Washington Post told us in no uncertain terms that things will have to be pretty bad, no two ways about it. Only those who bothered to read to page two would find out that there is actually considerable uncertainty about the point at which debt really poses a serious burden on the economy. On page two they would discover the United States actually had a debt to GDP ratio that was nearly twice as high as it is presently. This did not prevent it from having three decades of extraordinarily rapid growth.

The Post's sharp paragraph two warning also ignores the great Citigroup profit trick that the Post applauded last week. The Citigroup profit trick involved the government buying Citigroup stock, guaranteeing the company's survival when it otherwise would have been bankrupt, then selling the stock at a profit when the price rises because of the government guarantee.

The Post warmly applauded this move and saw it as giving the government money -- a great win-win story. Of course, the government can follow the same route pretty much without limit. It can take large stakes in all sorts of companies, then guarantee the companies' debts, thereby lowering borrowing costs and increasing profits. This will raise the stock price, thereby allowing the government to sell at a profit.

The real story of course is that the economy is well below its full employment level of output. This means that it can increase output by just printing money. However, superstitions held by the people who set economic policy and write about it at leading outlets like the Post are preventing the government from taking this simple and obvious step to increase demand. So, if the straightforward route is blocked by superstition, then we effectively accomplish the same thing by using Citigroup profit trick and win great applause the Post and other deficit hawks.

--Dean Baker

The Washington Post (a.k.a. Fox on 15th Street) told readers that: "Social Security is already draining resources from the broader federal budget, as spending on benefits has risen above this year's Social Security tax collections."

Yes, Social Security benefit payments exceed the money currently being collected in Social Security taxes. The gap is being made up by the interest it earns on the $2.5 trillion in government bonds held in the Social Security trust fund. It is peculiar to describe spending money from its interest earning (or for that matter the bonds themselves) as "draining resources from the broader federal budget." However, if that is the standard the Post wants to use, then we should say that any individual or entity that draws interest from the federal government on bonds it holds is also "draining resources from the federal budget."

This means that billionaire Wall Street investment banker and long-time foe of Social Security Peter Peterson is also draining resources from the federal budget by the Washington Post standard (assuming that he owns some government bonds. No doubt the WAPO will have a story on this fact sometime in the near future.

--Dean Baker

That is the only thing that readers can conclude from a statement in an article on Federal Reserve Board Chairman Ben Bernanke's urgings to reduce the deficit. The WSJ told readers that: "The government is running a budget deficit in excess of about $1.3 trillion, more than 10% of the nation's total economic output." Of course, the Commerce Department is telling us that GDP for the fourth quarter of 2009 was $14.5 trillion, which would mean that the deficit is less than 9.0 percent of GDP.

This trouble with numbers carries over to the substance of the piece which is supposed to be that the country faces an imminent crisis in being able to sell its debt. It warns readers that: "yields on 10-year Treasury notes have risen from around 3.25% in late November to just under 3.9% today, in part because of concerns in credit markets about the mountains of government debt investors are being asked to buy to fund U.S deficits."

Hmmm, we are paying 3.9 interest because there are concerns in credit markets about "mountains of government debt." Were investors also concerned about "mountains of government debt" when they demanded interest rates of more than 6.0 percent to hold federal debt back in 2000? Oh yeah, we had a $250 billion surplus back in 2000.

The reality is that the WSJ is just telling us that they don't like the government's debt. The markets did not tell them why interest rates rose from the extraordinarily low levels of last November. They are just making this stuff up and feeding it readers as truth.

We expect this sort of thing on the WSJ editorial page. We expect better in the news section.

--Dean Baker

The NYT reports that China's government signed a deal with the state of California and General Electric to provide engineering expertise and high tech parts for the construction of high-speed rail. This is a fascinating and totally predictable story which cause great pain to many purveyors of the economic conventional wisdom (CW).

China has been building high-speed trains, the United States hasn't. This means that the country has substantially more expertise in this area than the United States. As a result the transfer of this green technology will go from China to the United States, the opposite direction assumed by purveyors of the CW.

More generally, this story shows the absurdity of the assumption of the purveyors of the CW that somehow the U.S. will transfer all its grunt work (i.e. manufacturing) to the developing world and leave the high tech stuff for our smart workers. The reality is that the developing world has hundreds of millions of smart workers who are able to do everything that our smart workers do, but are willing to accept much lower wages. If we subject our more highly educated workers to the same sort of international competition as we have subjected our low-wage workers, they will also lose. This will only change when currencies adjust and wages in the developing world move closer to U.S. levels.

--Dean Baker

Steven Pearlstein often has insightful columns, not today. He discusses a conference he attended in which a repeated theme was how the media contributed to the crisis with its poor reporting. He then comments: "although it's a bit overdone, I'll admit there is a dollop of truth in it."

A "dollop?" How about an enormous ocean full of truth to it and Pearlstein continues to contribute to the crisis today by covering up the earlier failure. He tells readers that:

"Three years after the onset of what was then thought of as the "subprime crisis," there remarkably is still no consensus on why it happened, who is to blame, how necessary the government bailouts were and what needs to be done to prevent such a cataclysm from happening again. Over time, the issues have been overwhelmed by populist anger, infused with political ideology, distorted by partisan maneuvering and special-interest pleading, and ultimately eclipsed by economic recovery."

Yeah, it's all really really complicated. Except it isn't.

Nationwide house prices had diverged from a 100-year long trend, increasing by more than 70 percent in real terms. There was no remotely plausible explanation for this run-up. What is hard to to understand to about this? What is complicated? Third grade arithmetic was all that was needed. It's simple, not complicated.

The run-up in house prices was driving the economy. This was also really easy to see. The government publishes GDP data every quarter. The data showed that housing construction had exploded as a share of the economy. You just had to look at the data. It's simple, not complicated.

The data also showed that consumption was booming and savings had fallen to near zero. This was driven by the well-known housing wealth effect. It's simple, not complicated.

It was also easy to see the explosion in subprime and Alt-A loans that people were using to buy homes they could not otherwise afford. These loans were sure to reset at higher interest rates. This works until house prices stop rising. It's simple, not complicated.

And, it was easy to see that house prices would stop rising. Vacancy rates were running at record levels. There is a concept called "supply and demand" in economics and the data showed that we had serious amounts of excess supply. It's simple, not complicated.

And when house prices started to fall, we knew that millions of loans would go bad, construction would plummet and consumption would fall back to more normal levels. This implied a really bad recession and serious financial problems. It's simple, not complicated.

So, Pearlstein is badly misleading reading when he tells us that it is all very complicated. Obviously the buffoons and hacks who either could not see the bubble or deliberately misled the public about it have good reason to tell everyone that it is all very complicated, but it isn't and was not. They did not do their job.

Include the Post high on the list of those who did not do their job. They had no space in their pages for anyone warning of the dangers of the bubble. The paper's main source for information on the housing market was David Lereah, the chief economist of the National Association of Realtors and the author of Why the Real Estate Boom Will Not Bust and How You Can Profit From it.

The Post and the rest of the media failed disastrously at their job to inform the public and they continue to do so. It's simple, not complicated.

--Dean Baker

David Leonhardt had a column discussing overuse of expensive medical care in the NYT today. Remarkably, this discussion did not mention the effect of patents in complicated decisions on treatment and raising costs.

Patents are essential to this discussion for two reasons. First, drugs and medical tests that are very expensive are generally expensive because of government granted patent monopolies, not their inherent cost. For example, a new generation of cancer drugs that can cost tens of thousands per year would be relatively cheap in the absence of patent protection. These drugs were expensive to develop, but once they have been developed, the production is cheap. By forcing patients to pay the high patent protected price, an otherwise simple decision (use the cheap drug) can instead be made very complicated.

The other reason why patents play such an important role in this discussion is that they give a party (the patent holder) a huge stake in misrepresenting the issues. Because drug companies or makes of medical equipment stand to make patent rents on the use of their product, they have an enormous incentive to promote its use even in cases where it may not be appropriate. This can lead to overuse and misuse, especially since the patent holder has the most information on their product. They may conceal evidence that it is less beneficial than claimed or even that it is harmful.

This column is the sort of place where it would be expected that readers would find a serious discussion of the role of patents in complicating decisions on appropriate care. It is disappointing that this issue is not addressed.

--Dean Baker

California has done some really really stupid things (like a tax credit for first time homebuyers), but the NYT did the state and its readers a disservice in going after California's pension fund liabilities. The basic story is that if you assume a 4.14 nominal rate of return on pension fund assets, then the state's pension liabilities look really really bad.

The big question that readers should ask is, so what?

There have been few people who have been more critical of assuming exaggerated market returns than me, but 4.14 percent nominal? Anyone want to take a bet that California's pension funds will do better than this?

Look, the market has plummeted from its prior levels. This is good news for future returns. Lower price to earnings ratios open the door for higher future returns. The logic is simple: you are paying much less for each dollar of profits. For this reason, the assumption of 4.14 percent average nominal returns (that gives us just over 2.0 percent real, assuming a 2.0 percent inflation rate) is ridiculously low.

Suppose we assume that pension liabilities grow at the nominal rate of 5 percent a year. If we sum the liabilities over 40 years, using a 4.14 percent discount rate gives a 70 percent higher cost than using a 7.0 percent discount rate. Stocks have historically provided a real return of 7 percentage points above the inflation rate, so assuming a nominal return of 7.0 percent for the mixed portfolio is hardly unreasonable.

In short, the story of outsized pension liabilities in this article is driven largely by a ridiculous assumptions about pension returns. There is no reason whatsoever that the state of California should use this 4.14 percent discount rate in assessing its pension liabilities. This calculation would lead it to exaggerate its pension liabilities and therefore raise taxes or cut pensions and/or other spending unnecessarily.

--Dean Baker

Okay, it's not quite that bad, but when someone who pretends to be serious wants his readers to celebrate the fact that: "the average American worker is nearly 10 times more productive than the average Chinese worker," it's getting pretty silly. (Actually it's probably closer than 7-8 times, but this is David Brooks we're talking about.)

People in the United States are used to comparing their living standards to countries like Canada and Germany, not China. While China is a rapidly developing country, it is still a relatively poor country in a process of catching up. It's more than a bit silly to tell people in the United States that our productivity is many times higher than that of a poor peasant agricultural worker in central China.

Brooks seems fascinated by the fact that our income is on average projected to rise. This is true and always has been true and it is true for almost every other country in the world. Incomes rise, incomes rise, incomes rise. Let's say that a few thousand more times so that no columnist will ever again write it up as though it is news.

This is the normal state for economies. Incomes rise through time because people become more educated, we get more and better capital, and our technology improves. The real issue is the rate at which incomes rise. For most people in the United States the rate of increase in income or living standards (this can also be the result of more leisure) has been extremely slow in the last three decades. Projections show that rising health care costs will eat up much of the projected gains in income over the next three decades. This is the sort of issue that serious people would look at.

Instead, Brooks touts our growing population -- hey we should be like Congo or Ethiopia, they even faster population growth. It's hard to know what planet Brooks lives on, but on this one, population growth is not a measure of prosperity. In fact, in a world where there is a desperate need to limit greenhouse gas emissions, population is decidedly unhealthy.

Brooks also specializes in presenting bizarre statistics with great authority with have nothing to do with reality. He told readers that:

"Over the past 10 years, 60 percent of American adults made more than $100,000 in at least one or two of those years, and 40 percent had incomes that high for at least three."

To have this even close to resembling reality, he has to be referring to household income, since the earnings of single adults. In other words, a competent columnist would have put this as:

"Over the past 10 years, 60 percent of American adults lived in a household that made more than $100,000 in at least one or two of those years, and 40 percent had incomes that high for at least three."

But, let's check this against the data we can get in two seconds from the Census Bureau. The Census Bureau tells us that 20.5 percent of households have income greater than $100,000. High income households are more likely to have two adults, so let's assume an average of 1.8 adult per high income household compared to 1.4 overall. This gets us 25.7 percent of adults were living in households that earned more than $100,000 in 2008.

Can we get 60 percent of adults living in a household with an income above $100,000 for at least one year in the last ten if only 25.7 percent had an income this high in any given year? That seems unlikely given that we know many two-earner professional households will never fall out of this category.

But, let's take the flip side. There were roughly 29 million households that had incomes of less than $25,000 in 2008. If we assume 1.2 adults in these households on average, then there were roughly the same number of adults living in households with incomes under $25,000 as there were living in households with incomes above $100,000.

Now, if we assume the same mobility around the bottom as around the top, then 60 percent of adults lived in a household that made less than $25,000 in at least 1 or 2 of the last ten years. And 40 percent of adults had incomes this low for at least 4 of the last ten years.

Well, Brooks did warn serious people to not read his column. They would be well advised to take this advice.

--Dean Baker

I don't ordinarily use BTP for addressing items that mention me or my work, but I'll make an exception in the hope of getting a good exchange going. Brad DeLong was good enough to begin a review of my book False Profits on his blog. After graciously giving me credit for recognizing the housing bubble and the dangers it posed, Brad goes on:

"But let me start by saying how I disagree with the book. I think that its story of the linkages between our current crisis and Federal Reserve policy is significantly overstated. Its argument about how excessively-low interest rates caused the housing bubble is exaggerated. I think that its belief that the Federal Reserve could have taken much more action to curb the housing bubble while is underway is also exaggerated, and does not recognize the very real constraints that the Federal Reserve works under and all but ignores the costs of austerity. And it overstates the strength of the links between the housing bubble and the housing crash on the one hand and our current situation of macroeconomic despair on the other."

Okay, let's go point by point.

1)"Its argument about how excessively-low interest rates caused the housing bubble is exaggerated."

That doesn't sound like my book. I argued that the weak economy caused by the crash of the stock bubble demanded stimulatory policy. Low interest rates were the right policy -- we needed them to recover from the stock bubble. However, this did create an environment that was conducive to the growth of bubbles. If the Fed had kept the Federal Funds rate at 5.0 percent I feel pretty confident in saying that we would not have had a housing bubble -- very high unemployment, but no housing bubble.

2) "I think that its belief that the Federal Reserve could have taken much more action to curb the housing bubble while is underway is also exaggerated, and does not recognize the very real constraints that the Federal Reserve works under and all but ignores the costs of austerity."

Let's see, my policy prescription was to have every last staffer at the Fed devoting all of his/her time to documenting the evidence for the bubble and the dangers it would cause to the economy. I would have had Alan Greenspan use his congressional testimonies and other public speaking engagements to warn of the risks of the bubble. This doesn't mean mumbling "irrational exuberance," it means carefully showing with charts and graphs how house prices have followed an unprecedented and unsustainable path. He also should have warned explicitly what would have happened to the banks that had made big bets on the bubble when it burst.

In addition, they should have made full use of their regulatory power (including working with other regulators) to crack down on the issuance and securitization of junk mortgages. The "who could have known?" line is crap. These loans were being issued by the million, there is no way Greenspan could not have known about them.

Would this have worked? Brad for some reason is very confident it would not have. It certainly would have been nice if the Fed had tried (what was more important?), then we would both know for sure.

As a last resort I would have raised interest rates. I hate to throw people out of work (except Wall Street bankers and economists), but it would have been better to preemptively burst the bubble rather than let it run its course and be where we are today.

3) "it overstates the strength of the links between the housing bubble and the housing crash on the one hand and our current situation of macroeconomic despair on the other."

There is a pretty direct line from the falloff in residential construction due to the overbuilding caused by the bubble, the falloff in non-residential construction due to the overbuilding caused by the bubble, and the falloff in consumption as a result of the lost housing bubble wealth and where the economy is today. I don't see much obvious room for a financial crisis in this explanation. The crisis may have brought the downturn on more quickly, but it seems that the basic problem is the loss of the demand generated by the bubble.

I have a strong ally in this argument: Spain. Spain did not have a financial crisis, but it now has 19 percent unemployment, the highest in the EU. The explanation is that Spain had a really huge housing bubble. It is not easy to find new sources of demand to replace 8-10 percentage points of GDP.

--Dean Baker

A front page Washington Post article told readers that:

"The number of people looking for jobs rose by more than 200,000 last month compared with February, according to the Economic Policy Institute -- and that's a good sign, economists say. It means that Americans are seeing more jobs being created and that they're optimistic about their prospects."

Umm, actually no. This increase in the size of the labor force is too small to be statistically significant. It is not uncommon for there to be big jumps in the size of the labor force for no obvious reason. For example, the labor force was reported as rising by 543,000 people in September of 2002, a time when the economy was still shedding jobs and by 554,000 jobs in April of 2009, when employment was still plummeting. There is no reason to think that the modest job growth shown for March would have any notably effect on job seeking.

--Dean Baker

In the middle of an article telling readers about Alan Greenspan's (yes, the guy who couldn't see an $8 trillion housing bubble) assessment of the economy, the NYT refers to the "paradox" that the Labor Department reported that the economy created 162,000 jobs in March but the unemployment rate remained fixed at 9.7 percent.

This is hardly a paradox. The labor force is growing at the rate of about 125,000 workers a month. This means that March's job growth was just a little faster than what is needed to keep the unemployment rate from rising. There was no reason that anyone should have expected a decline in the unemployment rate. In fact, the number of people reported as being employed in the household survey used to measure the unemployment rate has grown far more rapidly than the number of workers on payrolls as measured in the establishment survey. Given the data reported in the establishment survey, it is surprising that the unemployment rate has not been rising the last four months.

--Dean Baker

Thomas Friedman has refrained from discussing economics in his columns for some time and the world was happy. But, now he's back with a vengeance. He begins his column with today's "fun fact":

"Between 1980 and 2005, virtually all net new jobs created in the U.S. were created by firms that were 5 years old or less, .... That is about 40 million jobs. That means the established firms created no new net jobs during that period.”

The rest of the column is devoting to touting the importance of new firms, which Friedman tells us are started disproportionately by high IQ foreigners. He therefore emphasizes the need to have a more open door for high IQ immigrants.

Making the U.S. more open to highly educated (I don't think we will be admitting foreigners based on IQ test results) immigrants is undoubtedly good policy. It would be great if doctors, lawyers, economists and other highly educated professionals got to enjoy the same sort of competition with low-paid workers in the developing world that manufacturing workers, dishwashers and custodians currently face. However, Friedman's conclusion about the special importance of new firms is utter nonsense.

The claim that most net new jobs came from new firms conceals the fact that existing firms added tens of millions of jobs in this 25-year period. Of course existing firms also lost tens of millions of jobs. We can say that the net job creation for existing firms was zero, but if we did not have an environment that was conducive for the job adders to grow (how many jobs did Microsoft, Apple, and Intel create after their first 5 years of existence?), then existing firms would have lost tens of millions more jobs.

The notion that anything meaningful can be learned by lumping the job adders with the job losers to say that existing firms created no net jobs is too painful for words. Suppose we looked at the 50 states and found that 10 had net job creation while the other 40 had no job growth. Friedman's methodology would tell us that we should ignore the 40 states with no job growth because jobs are only created in the dynamic 10. (Oh no, I probably gave Friedman the topic for his next column.)

Please, please someone take away Thomas Friedman's license to write on economics before he kills logic again.

--Dean Baker

This is the question that everyone should be asking, not just of Greenspan, but of every economist in the country. The NYT has nice column by Michael Burry on the topic.

--Dean Baker

The NYT had an excellent piece on how private equity funds (e.g. Peter Peterson's Blackstone Group) ripoff state and local governments by charging them large management fees. A standard arrangement will give the equity fund managers 2.0 percent of the funds under management and 20 percent of the profit. The article notes several cases where these investments have turned out poorly for pension funds and cites academic studies that show private equity funds, net of fees, provide on average no better return than broad stock indexes.

--Dean Baker

When people talk about plans to "help" homeowners they must (yes, I said "must") ask two simple questions:

1) Are the homeowners being "helped" paying less in mortgage and other housing costs than they would to rent a comparable unit: and
2) Are the homeowners likely to end up with equity in their homes?

Neither of these questions get asked in this discussion of the merits of the Obama administration's plans to "help" homeowners.
This means that the NYT wasted readers time and killed trees for no good reason.

The point should be really straightforward. We help homeowners when we actually put money in their pocket. If homeowners are paying more in housing costs than they would to rent the same unit, then we have not put money in their pocket, we have put money in the banks' pockets. This is a policy to help banks, not homeowners.

That can be offset if there is reason to believe that the homeowner will eventually end up with equity in their home. Do we have any reason to believe that this will be the case? Well, that would depend on things like current ratios of sale price to rents and vacancy rates. These issues are not discussed anywhere in this piece or indeed in the overwhelming majority of pieces that discuss mechanisms to help homeowners.

In markets where prices are still bubble-inflated, giving people money to stay in their homes as owners is giving money to banks. In other markets, the owners could actually benefit. However, it is impossible to discuss the issue seriously without being able to distinguish between these situations.

--Dean Baker

To those who pay attention to the economy, it's rather evident that the basic economic problems of the last two decades are the bubble driven growth of this era and the country's broken health care system. But NYT columnist David Brooks apparently never allows the actual state of the economy to affect his pronouncements about the economy and our moral state.

Therefore he describes the rise of personal debt from 55 percent of national income in 1960 to 133 percent in 2007 as being the result of the fact that: "life has become secure. This has eroded the fear of debt, private and public."

Let's try an alternative hypothesis. Wages have stagnated for tens of millions of workers. I guess no one Brooks hangs out with caught this development. In a context of stagnating wages, many families have been forced to take on debt to maintain living standards.

The other reason that borrowing has increased is that people spent money based on their stock and housing bubble wealth. Perhaps Brooks can't be blamed for not knowing about the stock and housing wealth effects, after all you would probably need an intro econ class to know about these concepts, but perhaps he could have found an econ major who could have explained that consumption increases when wealth increases. This means that when a housing bubble creates $8 trillion of housing bubble wealth, we would expect consumption and debt to increase. After all, rich people can afford to borrow more than poor people and the wealth created by the housing bubble made many families feel richer. The same was true of the $10 trillion in bubble wealth created at the peak of the stock bubble.

If Brooks wanted to discourage excessive debt, he might have called attention to these bubbles. But, Brooks would rather use his columns to call out the moral failings of the American people. Hence his comment that: "these days, voters want low taxes — about 19 percent of G.D.P. And they want high spending — over 25 percent of G.D.P. by 2020." He later warns us that this has on a path to be paying $900 billion a year in interest by 2020.

Yes, that $900 billion is really really scary. I don't know anyone who has $900 billion. Serious people would point out that the projected interest burden is a bit more than 4.0 percent of GDP, about the same as it was in the early 90s.

More importantly, there are not many people who have advocated spending 25 percent of GDP. They have expressed support for specific programs, like Social Security and Medicare. The latter costs way more in the United States than in any other country, not because we get better care, but because our health care system is hugely corrupt and inefficient. If we paid the same amount per person for health care as people in any other country then the deficits would quickly vanish.

Furthermore, even if fixing our health care system is hard to do politically because the system is so corrupt, we could achieve enormous savings by just allowing for freer trade in health care. But Brooks is such a hard core protectionist when it comes to the interests of the health care lobby that he cannot even conceive of openings to trade that would hurt their interests.

So, we instead get a lecture about the moral failings of the American people and the need for heroic actions to save them from themselves with carefully constructed commissions of experts. This is the best that American conservatism has to offer?

--Dean Baker

I leave the assessment of this USA Today headline to readers' judgment.

--Dean Baker

That is what the headline of an article on new economic data told readers. The headline is: "Unemployment and Inflation Rise in Europe." The data showed that unemployment increased from 9.9 percent in January to 10.0 percent in February.

This increase is not statistically significant. It is also the same unemployment rate that had originally been reported for November, but was subsequently revised down to 9.9 percent. In other words, the unemployment rate has been essentially unchanged for the last four months.

The rise in the inflation rate was an increase in year over year inflation from 0.9 percent in January to 1.6 percent in February. Since a major concern in most countries, including those in Europe, is deflation, this rise in the inflation rate would likely be viewed by most analysts as a positive development, although the monthly data is highly erratic so the number does not have much consequence.

--Dean Baker

The Post reported on President Obama's lifting of the moratorium on offshore drilling and the response to the decision. While the article noted the reactions of politicians and presented polling data, it neglected to mention the fact that the oil that can potentially be obtained from these areas will have no noticeable impact on oil prices.

According to the Energy Information Agency, it will take two decades for the areas to reach peak production of 100,000 barrels a day, or 0.1 percent of world oil supply. In other words, the decision to open up drilling in these areas was entirely political. It had nothing to do with meeting the country's energy needs. This information probably would have been more useful to readers than accounts of the political reaction to President Obama's decision.

The NYT did a bit better in providing some context, but not much. It told readers that offshore sites may provide enough oil to supply the country for 3 years. It later noted that the Gulf Coast area that is being opened for drilling may have as much as 3.5 billion barrels of recoverable oil. This is less than 6 months worth of demand.

--Dean Baker

The Washington Post repeated a common complaint that the reason that the economy is not creating jobs is because employers are squeezing more productivity out of workers and therefore need fewer workers to produce the same level of output. Productivity growth cannot explain the failure for the economy to generate jobs thus far in this recovery.

While productivity growth has been strong over the last year, growing by 5.8 percent from the fourth quarter of 2008 through the fourth quarter of 2009, this is common for a period of recovery. Productivity grew at a 6.9 percent rate in the four quarters from the first quarter of 2001 to the first quarter of 2002, a 5.4 percent rate from the third quarter of 1982 to the third quarter of 1983, and a 4.6 percent rate from the third quarter of 1974 to the third quarter on 1975. The rapid productivity growth seen in the last four quarters is a typical pattern at the end of a recession, it does not explain the lack of job growth in this recovery compared with the rapid job growth in prior recoveries. The difference is rather explained by the relatively weaker growth in this recovery.

--Dean Baker

NYT columnist Andrew Ross Sorkin warned readers that higher bank capital requirements, intended to ensure safety: "would come at the expense of economic growth as banks would make fewer loans.This is not true.

The Federal Reserve Board decides on the level of reserves that it wants to pump into the financial system based on the level of economic activity. If economic activity is too slow, it can increase the volume of loans available to banks by putting more reserves into the system. Contrary to what Sorkin asserts, it is not necessary for the banks to raise their leverage of the same amount of reserves in order to generate more loans for businesses.

--Dean Baker

The NYT told readers that home sales are surging in advance of the April 30th expiration of the extended first-time homebuyers tax credit. While it is reasonable to expect somewhat of a surge, there is actually very little evidence of one this far.

The Mortgage Bankers Association mortgage applications index has been running substantially below last year's depressed levels. The vast majority of homebuyers will be taking out mortgages, so if this index is depressed, it suggests that there is not yet any surge in buying. The evidence presented in the article is that home sales in several cities were considerably higher in February than January. This is not evidence of an upturn in sales. This is a normal seasonal pattern, as home sales bottom out in the winter. (It is possible that the data presented in the article is seasonally adjusted, although the piece does not indicate that it is.)

--Dean Baker

The NYT discussed concerns that the new health care bill will do little to address the problem of overuse of certain medical procedures that drive up costs. Remarkably, the article never discusses patent monopolies, which are a major factor driving up costs and excess use.

Patents lead to excess costs for two reasons. First, by granting monopolies, patents push up the price of many drugs and medical equipment by several thousand percent above their marginal cost. This is especially true of drugs, almost all of could be profitably sold for just a few dollars a prescription in a free market.

The other reason that patents drive up costs and lead to misuse is that the rents provided by patent monopolies provide an enormous incentive for manufacturers to mislead patients and doctors and push their products in cases where they may be inappropriate. In pursuit of patent rents manufacturers spend an enormous amount of money marketing their products and often conceal information that reflects poorly on its usefulness.

It is surprising that there is no discussion of this basic economic issue in this sort of article. There are more efficient mechanisms to support biomedical research.

--Dean Baker

On April 1, 1996, way before anyone heard of a blog, Beat the Press
began as a weekly commentary called "Reading Between the Lines" on the
Economic Policy Institute's website. I started writing it because I felt
that major media outlets were often obscuring rather than explaining
major economic issues.

Since then BTP has gone through many format and name changes. When Mark
Weisbrot and I founded the Center for Economic and Policy Research over
10 years ago, it moved with me and was renamed the "Economic Reporting
Review," or ERR (the acronym was not an accident), and in its tenth year
BTP got its current name, became a daily blog, and joined the Tapped
lineup at The American Prospect. I want to express my gratitude to TAP
for hosting Beat the Press and exposing it to its well-informed and
thoughtful readership over the past four years.

On April 1, 2010, its 14th anniversary, Beat the Press will be coming
home to the Center for Economic and Policy Research's website. Again,
I'd like to thank TAP for graciously offering to co-post Beat the Press
for two more weeks and redirecting readers to BTP's new home page. I hope you will not only follow Beat the Press to its new home, but also continue to
check in at Tapped for the important perspective that they provide to us
all.

--Dean Baker

The Post once again used xenophobia to push its budget agenda as editorial page editor Fred Hiatt darkly warned readers that as a result of projected future budget deficits: "the United States would be increasingly at the mercy of China, Saudi Arabia and other lenders."

Of course, as every econ 101 student knows, budget deficits do not determine the indebtedness of the U.S. to foreigners, the trade deficit does. The trade deficit in turn is the result of an over-valued dollar. The Post has actually been a supporter of the "strong dollar" policy that has given the U.S. high trade deficits. So, when it comes to the policy that actually puts us "at the mercy of China, Saudi Arabia and other lenders," the Post has been on the wrong side.

It is also worth noting that the protectionist policies that the Post supports are a big factor in the deficit. If the U.S. allowed freer trade in health care services, especially the provision of Medicare, it could lead to enormous savings for the government and huge income gains to beneficiaries.

--Dean Baker