People making over $225,000 must have it much tougher than the rest of us since the media highlight their problems so frequently. In discussing the housing market and the homebuyers' tax credit USA Today told readers: "Many potential buyers in higher-price markets such as New York, Boston, Hawaii and San Francisco won't qualify because their incomes are too high. Under the income limits, single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit."

This group accounts for less than 2 percent of families. Given the difficulty facing these upper income taxpayers, it would no doubt make sense to impose higher taxes on renters earning $70,000 so that these potential homebuyers can also get the full benefit of the tax credit (btw, this is a phase out, not a cutoff, so even families earning somewhat above $225,000 will still be getting some money from more moderate income taxpayers for doing the public the service of buying a big home.)

--Dean Baker

USA Today highlights a new measure of economic activity that is based on truckers' use of diesel fuel. This is an interesting way to try to get an up-to-date measure of the production and sale of goods in the economy. By contrast GDP numbers only come out quarterly and are not released until a month after the quarter is over. Similar information can be found by simply examining the index of hours worked in trucking in the monthly employment report. (Unfortunately, the Labor Department just stopped publishing this index for the trucking sector this month.)

--Dean Baker

Congress is debating a jobs bill that is expected to cost around $85 billion. It would be helpful if reporters would put this number in some context. This spending would most take place over the next year and a half. GDP over that period will be approximately $20 trillion, so the projected spending in the bill would be a bit more than 0.4 percent of GDP. The government is projected to spend more than $5 trillion, so the spending would be equal to approximately 1.6 percent of total spending.

Given the limited size of this bill, it is likely to have limited impact on employment and the economy.

--Dean Baker

The deficit hawks apparently believe that their case is so weak that they must resort to crass jingoism to push their agenda. NBC apparently intends to run a piece on the evening news on Tuesday that talks about the portion of the government debt that is owned foreigners, highlighting the role of China.

This is incredibly dishonest. The extent to which foreigners hold U.S. assets is determined by the trade deficit, not the budget deficit. (Actually, the causation largely goes the other way. The decision of foreign governments and/or investors to buy dollar assets raises the value of the dollar, leading to a larger trade deficit.) Insofar as there is an issue of U.S. indebtedness, it is the holding of U.S. assets in general by foreigners. This represents claims against future U.S. output that will be paid out to foreigners rather than being available for domestic consumption. Whether foreigners hold shares of General Electric and Microsoft or U.S. government bonds makes no difference, especially since one can be readily sold to buy the other any day of the week.

A serious discussion of this issue would focus on the value of the dollar. That is the relevant factor in the story of foreign indebtedness. Given the current value of the dollar, at the same level of GDP, we would be building up just as much foreign debt if the government were running a budget surplus rather than a $1.3 trillion deficit. Economists all know this.

However, the deficit hawks are not interested in a serious discussion. They are pushing their agenda of cutting Social Security and Medicare. And they are apparently willing to appeal to crude jingoism to make their case.

--Dean Baker

Allan Sloan told listeners to Marketplace radio this morning that future retirees should be worried about their Social Security benefits because the program is now paying out more in benefits than it collects in taxes. In fact, the program has accumulated more than $2.5 trillion on government bonds in its trust fund. The Congressional Budget Office projects that this fund will be sufficient to pay all scheduled benefits through the year 2044.

Even after that date, if nothing is ever done to change the program, the projections still show that it will be able to pay close to 80 percent of scheduled benefits. This will still provide future retirees with a benefit that is considerably larger than what current retirees receive.

All of these benefits will be paid under current law. Congress would have to vote to overhaul the program to prevent the payment of benefits.

--Dean Baker

The Washington Post ran another appeal for congressional passage of trade agreements negotiated with South Korea and Colombia. It refers to these deals as "free trade" agreements even though an important part of both deals involves increasing protectionist barriers in the form of patent and copyright protection. This increased protection will raise costs and lead to increased economic distortions.

The Post has a long history of making things up to promote trade agreements. For example, a 2007 editorial promoting NAFTA told readers that Mexico's GDP had quadrupled from 1988 to 2007. The actual increase over this period was 83 percent. The Post never printed a correction of this grossly exaggerated growth figure. (NAFTA took effect in 1994, so it not clear why the paper chose 1988 as the beginning year to assess NAFTA's impact.)

--Dean Baker

I suppose that it is hard to get information about the federal budget way out in the outskirts of downtown Washington. This no doubt explains why Robert Samuelson doesn't seem to know about the Social Security tax. In fact, he doesn't seem to know much about the federal budget at all.

Samuelson complains that the government: "the budget is mainly a vehicle for transferring income to retirees from workers, who pay most taxes." This complaint is based on the portion of the budget that goes to funding programs that largely support retirees, specifically Social Security, Medicare, and Medicaid. Of course the reason that much of government spending goes to support retirees is that a large portion of tax revenues is collected in taxes designated for this purposes. In fact, almost 40 percent of government revenue currently comes from these taxes.

People who know about the Social Security and Medicare taxes are not surprised that a large portion of government spending goes to support these programs. Similar logic explains why such a disproportionate share of government spending goes to pay money to rich people like investment banker and noted deficit hawk Peter G. Peterson. These wealthy people tend to get much larger payments from the government than low-income families because they bought bonds from the government.

Most people understand this situation. It's too bad that the Washington Post could not find a columnist who is not confused by simple budget issues.

--Dean Baker

The NYT and every one else keeps saying that Social Security is one of the three most rapidly growing items in the budget. This is not true. Defense spending grew more rapidly over the last decade. We spent $655.8 billion on defense in 2009 more than double the $306.1 billion spent in 2001. $By comparison, Social Security spending rose by just over 50 percent during these years from $429.4 billion in 2001 to $677.7 billion last year. If we're looking forward, interest spending is projected to grow more rapidly. So it is simply inaccurate to list Social Security among the areas of most rapid spending growth in the budget.

Of course, in discussing Social Security spending serious reporters would point out that it is financed by a dedicated tax. Since payments are projected to be fully covered by this tax and the interest on the bonds held by the Social Security trust fund, cutting benefits would effectively amount to a default on the bonds held by the trust fund. Of course, if the U.S. budget situation really were sufficiently desperate (it isn't) then we would want to consider a partial default, but there would be no reason to default exclusively on the bonds held by the Social Security trust fund.

--Dean Baker

The NYT argues for the need to address the deficit in the near future. Given the dominance of this debate by shrill deficit hawks, it would have been more helpful if the NYT had focused on the no reason to address the deficit now point, and emphasized the need for more stimulus as a way to put our children's parents back to work so that our children do not have to experience extended period of deprivation in their childhood.

The NYT piece also presents some misleading mythology. It notes that the last Clinton budgets had surpluses and that he left office with large surpluses projected long into the future. This is a cute story, but the reality is that these surpluses were not sustainable. The economy in the last Clinton years was being driven by a stock bubble. It was inevitable that the bubble would burst, as it did in the years 2000-2002. This through the economy into a serious downturn. (The official recession was short, but we did not start creating jobs again until the fall of 2003.)

The downturn was the major factor behind the shift from Clinton surpluses to Bush deficits, not the tax cuts or even the war spending, which the NYT is right to note is a major factor in current deficits (@$300 billion of the annual deficit is attributable to higher than expected defense spending). The collapse of the stock bubble, by itself, cost the government more than $600 billion in capital gains taxes over CBO's 10-year projection period in 2001.

In short, the economy that supported the budget surpluses of the Clinton years was not a healthy one. Bush's economic mismanagement made it much worse, but the economy was not on a sustainable path at the point he took office.

--Dean Baker

The NYT reported that Lloyd Blankfein, the man who engineered the government's bailout of Goldman Sach's, will get a bonus of "only" $9 million for 2009. The use of the word "only" in the headline of this piece displays questionable judgment. Without the help of tax dollars from bus drivers and school teachers, Goldman Sachs would have collapsed in 2008 and Mr. Blankfein might well be on an unemployment line right now.

In short Mr. Blankfein took his company to the edge of bankruptcy (and caused enormous damage to the economy in the process). He was subsequently rescued by his former colleagues who occupied top positions in the government. "Only" might not be an appropriate word to describe his $9 million bonus.

--Dean Baker

I haven't seen that headline. Maybe we should ask why. If stocks were following their current course and Bernanke had not been approved by the Senate, there would have been no shortage of people willing to blame his rejection for the downturn. In reality of course, no one can really explain day to day movements in the stock markets, people are just guessing. The millions of independent actors that cause these movements don't offer their opinions, they just buy and sell.

Only a fool would try to make policy based on these movements and only a dishonest political hack would use them as a basis for supporting or opposing specific policies.

--Dean Baker

NPR did a propaganda piece on small businesses on Morning Edition today, featuring an uncritical interview with the Karen Mills, the head of the Small Business Administration (SBA). There are many good things that one can say about small businesses. They are responsible for the overwhelming number of new jobs in the economy, they are a source of innovation, they can be an important source of upward mobility.

However, small businesses are also responsible for the overwhelming majority of job losses in the economy. (Serious economists would talk about net job creation -- jobs created minus jobs lost -- and by this measure small business does no better than big business.) Small businesses pay their workers less on average than large businesses. They are less likely to provide workers with health care and pension benefits. Small business owners are also the major source of tax cheating. Their evasion of hundreds of billions of taxes every year leave the rest of us with larger tax bills.

It would have been helpful if NPR raised these issues instead of implying that anything and everything that the government does to promote small business is a benefit to society.

--Dean Baker

It's often said that everyone in Washington is so smart that they skipped directly from 2nd grade to 4th grade. This explains why so many people in top positions don't know third grade arithmetic.

The WSJ gave us another example of this lack of knowledge when it listed Medicare and Social Security as "the U.S.'s biggest budget busters." In fact, those of us who did sit through third grade know that Social Security actually is running an annual surplus. The amount of money it takes in each year on the designated Social Security tax and the interest it collects on its bonds exceeds what it pays out in benefits.

While Medicare's costs are rising rapidly due to the broken private health care system, Social Security is a money loser in the same way as IPOD is for Apple.

--Dean Baker

Japan is one of the most crowded countries in the world. It hires people to push commuters into over-packed Tokyo subway cars during rush hours. Given its overcrowding, it is difficult to see why the Japanese people should view the prospect of the declining population as a crisis, as the Washington Post argues in a "news" story.

In fact, Japan's economy continues to produce far more than it consumes, which is why it has a trade surplus, something that appears in the Post article as a serious negative. In fact, economists would argue that this is exactly what a country with an aging population should be doing: running trade surpluses so that it can draw on foreign assets in future decades.

It is not clear what sort of crisis the Post envisions from the aging of Japan's population. It seems to believe that Japan will face a labor shortage, but of course this is the opposite of the situation at present where its economy is operating far below full employment. In the future, if its economy does begin to reach full employment levels of output, then this would simply mean that labor goes from less productive jobs to more productive jobs. This is a process that always happens in growing economies. That would mean that positions in some less productive jobs, like the Tokyo subway people packers, may go unflled.

--Dean Baker

The NYT discussed the prospects for the 2009 bonus for Goldman Sachs CEO Loyd Blankfein, which it reports could be as high as $100 million. The article notes anger over the huge bonuses at bailed out institutions, but then tells readers that Goldman paid back the money "with interest."

It would have also been worth informing readers that the interest paid by Goldman was far below the market interest rate at the time of the crisis. We know this because Warren Buffet contracted to lend money to Goldman at the the same time as it received TARP money and charged more than twice the interest rate as the government. In addition, Goldman was allowed to borrow more than $20 billion with a guarantee from the FDIC. This guarantee saved Goldman several billion dollars in interest costs. Goldman likely also borrowed billions of dollars at below market interest rates from the Federal Reserve Board's special lending facilities, although we don't know this for certain because Federal Reserve Board Chairman Ben Bernanke refuses to tell the public to whom he lent our money and under what terms.

Goldman was also handed almost $13 billion from the government through AIG, that it would not have received if the government had allowed AIG to go bankrupt. Goldman is not repaying this money.

Getting money at below market interest rates is a gift, just like getting anything else at below market price is a gift. If the NYT felt the need to give us additional background about Goldman repaying its bailout money (with interest) in the context of a discussion of Mr. Blankfein's bonus, it should have also informed readers that the interest it paid was far below market rates.

--Dean Baker

The NYT tells readers that: "China’s leaders have grown impatient with lectures on economic policy from their chief debtor, the United States." The reason that the United States is China largest debtor is that China is buying up massive amounts of U.S. government debt and other dollar denominated assets to maintain the high value of the dollar against the yuan. By pushing up the value of the dollar against the yuan, China makes U.S. produced goods less competitive both within the United States and internationally. This is a major cause of the U.S. trade deficit. In addition, because it increases the trade deficit and lowers GDP, China's currency policy also raises the U.S. budget deficit.

Who would have more reason to give China "lectures" on its currency policy than the country that suffers most from this policy. The NYT implies that there is something peculiar about the Obama's administration's complaints given that it is a large debtor of China. Of course the whole point is that the Obama administration is complaining because China's policies have made it a large debtor.

It is worth noting that the United States does not have to beg China to change its currency policy as the article implies. It can unilaterally set an exchange rate that has a lower value for the dollar against the yuan. This would be an extraordinary measure, however if China refused to raise the value of the yuan, the U.S. government could announce its willingness to trade yuan at a higher value (e.g. 5 yuan to a dollar) than China's official exchange rate.

--Dean Baker

According to the NYT, when the Senate Banking Committee heard testimony by Paul Volcker on his proposal to restrict proprietary trading by commercial banks, Senator Bob Corker expressed concern that the restrictions would cause banks to move overseas. It appears as though Mr. Corker implied that this would be a bad thing.

In fact, if banks who want to engage in risky behavior move their operations overseas we should view this as a positive. The explicit and implicit support that governments give to their banks is a form of subsidy. The subsidy is larger if the banks are allowed to take excessive risks. If other countries allow their banks to take bigger risks than would be allowed in the United States, then people and businesses in the United States can take advantage of their more lax regulation. If things turn out badly, then these other countries will end up picking up the tab for their banks, just as did Iceland.

This is an argument for effective regulation in the United States, not an argument against it. The NYT should have noted Mr. Corker's apparent confusion on this issue.

--Dean Baker

In the middle of an article discussing the likelihood that homeowners who are underwater in their mortgages would just walk away and turn over the house to bank, the NYT tells readers that: "doing nothing about underwater mortgages could encourage more walk-aways, dealing another blow to a fragile economy."

It is not clear on what evidence the NYT is basing the assertion that more people defaulting on their mortgages would damage the economy because none is presented. In fact, this is likely to benefit the economy since if people stop paying mortgages on homes that have fallen in value since the collapse of the bubble, and decide to rent instead, it is likely to free up thousands of dollars a year for each family. If millions of homeowners made this decision it could lead to tens of billions of dollars in additional consumption, providing a substantial boost to the economy. The decision of homeowners to walk away might be bad news for banks, but it is good news for the economy.

In this respect it is worth noting that the Obama administration's mortgage modification programs are likely hurting the economy by encouraging underwater homeowners to keep paying mortgages that far exceed the rent they would pay on a comparable unit. In addition, these programs use taxpayer dollars that could in principle be used for health care, education or other important purposes.

--Dean Baker

There is a new favorite in the "stupid things that intellectuals say" category. As David Brooks tells readers in the NYT this morning: "the federal government now spends $7 on the elderly for each $1 it spends on children."

Of course this is true. That is because we run a retirement program through the federal government. We require workers to contribute to Social Security (they go to jail otherwise). They then get Social Security benefits back when they retire. Similarly, we also require them to pay taxes to support their health care in retirement which is provided through Medicare. (This program is not fully financed through the designated tax.)

Since we require that workers pay substantial taxes through their entire working careers to the government to help support their retirement, it really should not be surprising that they get a substantial sum back from the government in retirement. However, if David Brooks and other so-called educated people want to ignore these taxes, then we should also talk about the money the government pays out to the super-rich, like investment banker and big-time Social Security foe Peter Peterson, as opposed to poor children.

Peterson has well over $1 billion in wealth. Let's suppose that he has 10 percent or $100 million in government bonds. This means that he would be getting around $3.5 million in interest checks each year from the government. By comparison, the total payments -- SCHIP, food stamps, EITC -- going to support a poor kid would probably not even sum to $10,000. This means that the taxpayers are giving Peter Peterson $350 for every dollar that we give to poor kids. Isn't that an outrage?

We should look forward to reading about that one in David Brooks' column in future days.

--Dean Baker

Okay, I don't know if the Post really has a record, but they do continue to misinform readers by referring to this year's budget deficit as a "record." Of course measured relative to the size of the economy, at 11 percent of GDP, the current deficit is well short of the record deficits during World War II which were more than 20 percent of GDP.

The Post might have also refrained from calling President Obama's stimulus package "huge." The package was much smaller than was advocated by many economists. Such adjectives are better left for the editorial pages.

The Post also told readers that: "deficits would remain elevated through 2020 and the national debt would grow -- potentially threatening the country's economic stability." This is a striking assertion from a paper that never once mentioned that the housing bubble could threaten the country's economic stability, especially since it is not supported by any of the evidence presented in the article.

--Dean Baker

The Obama administration deserves credit in trying to make the spending from the stimulus package and its impact on employment as transparent as possible. They asked the beneficiaries of this money at the state and local level (both Democrats and Republicans) to list the jobs funded with it.

This is a great step forward in government transparency and the Obama administration deserves credit for it, whether or not someone agrees with the stimulus. (Stimulus opponents should be able to go through this list and pick out stupid projects and point out how some large number of people wasted their time doing useless tasks.)

Given that the purpose of this effort has been to simply convey information (which the Obama administration expected to show it in a favorable light) it is remarkable how critically this effort has been treated in the media. There have been numerous articles highlighting the errors in reporting. This was pretty much inevitable, given that they were relying on tens of thousands of public officials, many of whom had little interest in being careful in their reporting of jobs.

More recently, the media are implying that there is something illicit in the switch from "jobs created or saved" to jobs funded by the stimulus. The NYT called this a "new, more expansive definition," as though the Obama administration was just trying to cook the books to produce bigger numbers.

In fact, this is about the most straightforward way to measure jobs imaginable. There is no perfect way to construct the counter-factual of what the world would look like without the stimulus, but reporting the number of jobs funded through the stimulus is at least a relatively objective measure of its impact.

--Dean Baker

The NYT had an article on how the U.S. is likely to wane as a global power, without ever once mentioning the trade deficit. It even quoted Larry Summers, the head of President Obama's National Economic Council saying: "“How long can the world’s biggest borrower remain the world’s biggest power?” without mentioning the trade deficit.

If the United States government had a large budget deficit, but no trade deficit, then it would mean that the money was being borrowed domestically. In this story, the United States government could be the world's largest borrower, but it would mean that its population was the world's largest lender. What would matter in terms of its international position would be its relative rate of productivity growth (which has been respectable in recent years).

However, the United States has been running large and unsustainable trade deficits in recent years because of the over-valued dollar. The trade deficits, not the budget deficits, have caused the country to become the world's largest debtor that Mr. Summers complained about. If the dollar and GDP were both at their current levels and the budget was completely balanced, we would be borrowing just as much money from abroad as we are today. Failing to discuss either the trade deficit or the value of the dollar in this context was an enormous oversight.

--Dean Baker

The headline of a WSJ article on the deficit told readers that: "deficit to hit all-time high." This is not true in any meaningful way. Measured in nominal dollars, the $1.6 trillion deficit is an all-time high, but measured as a share of GDP (the only meaningful measure) the deficit is about 11 percent of GDP. This leaves it much smaller than the deficits run during World War II which exceeded 20 percent of GDP. (Marketplace radio made the same error on Monday morning.)

The article reports that after falling as the economy recovers, the deficit is projected to rise again due to baby boomers collecting Social Security and Medicare. Actually, the main reason for the projected increase in the deficit at the end of the decade is rising health care costs which will get passed on in higher costs for Medicare, Medicaid and other government programs. If the United States health care system were as efficient as those in other countries, the U.S. would be expecting huge budget surpluses in future decades.

--Dean Baker

Many developing countries have deliberately maintained over-valued currencies. This make imports cheaper for their elites. It also makes military goods cheaper, allowing belligerent leaders the opportunity to be more powerful.

The problem with over-valued currencies is that they are not sustainable. They make imports cheaper, pricing domestically produced goods out of the market. They also make the country's exports uncompetitive. The result is a trade deficit that will grow ever larger -- compounded by the growing interest burden of a rising foreign debt -- eventually forcing down the value of the currency. Often the devaluation of the currency is a huge embarrassment for the leaders involved, in many cases resulting in changes in government.

Jeffery Garten, a former top official in the Clinton administration, presents what must be the view of these developing country leaders when they are forced to confront reality and devalue their currency. After originally supporting a drop in the value of the dollar as an integral part of its deficit reduction program, the Clinton administration reversed course when Robert Rubin became Treasury Secretary and began to push for an over-valued dollar. The predictable result was a large and growing trade deficit. This trade deficit not only cost millions of manufacturing jobs (thereby putting downward pressure on the wages of non-college educated workers), it was also a key factor in the imbalances that led to the housing bubble and the current crisis.

Mr. Garten notes the inevitability of the dollar's decline (remarkably, he attributes the decline to the budget deficit rather than the unsustainable trade deficit) and then complains how it will reduce the influence of the United States in the world. In particular, he complains that the lower-valued dollar will reduce the power of the U.S. military in the world.

This is a fascinating account from a top economic official who was apparently willing to sacrifice the long-term health of the economy in order to temporarily increase U.S. military influence. It would have been helpful if the media had presented these issues more clearly so that they could have been the topic of public debate.

--Dean Baker

The country is currently suffering through the worst downturn since the Great Depression, with 15 million people unemployed. That might seem a strange time to introduce a tax credit, on provision of which, would give companies an incentive to hire fewer workers, but that is apparently what President Obama proposes, according to the NYT, although it fails to call this fact to readers' attention.

At any point when a business needs more labor, it faces the choice of whether to work the existing work force longer hours or whether to hire additional workers. There are reasons why any given company may go one or the other direction. From the standpoint of maximizing employment, it is obviously desirable to have companies opt to hire more workers.

The difference between longer hours and more workers can be dramatic. If employers opted to have their existing work force employed on average for 1 percent more hours, this would fill the same demand for labor as hiring 1.4 million workers. Countries like Germany and the Netherlands have managed to keep their unemployment rate from rising in this downturn by encouraging companies to have workers employed for fewer hours. (The unemployment rate in the Netherlands is under 4.0 percent.)

This should lead people to ask why President Obama is proposing a tax credit that rewards employers for having workers put in longer hours, as described in this NYT article. It is possible that it will not have much effect because the incentives are not that large, but it is still perverse policy to discourage job creation in the middle of a severe recession. The NYT should have asked an economist to comment on this job destruction tax credit.

It would also have been worth getting some economists to comment on the other portion of the proposed tax credit (which does create jobs), which would go directly for hiring new workers. This credit can be easily gamed, for example if a company brings contracted labor onto its payroll. (It is common for companies to contract out custodial work, lawn care and other jobs.) This may have some positive effect on the quality of these jobs, but it does not lead to the creation of new jobs.

There is also a large body of research, most of it connected with increasing the minimum wage, that shows that the demand for labor is not very responsive to moderate changes in the cost of labor. See for example, "Time-Series Minimum Wage Studies: A Meta- Analysis," by Princeton University Professor Alan Krueger (with David Card), who is currently the chief economist in President Obama's Treasury Department. See also "Making Work Pay: The Impact of the 1996-97 Minimum Wage Increase " by Jared Bernstein (with John Schmitt), the chief economist for Vice President Joe Biden.

If increasing the cost of labor 15-20 percent by raising the minimum wage doesn't lead to measurable job loss then it is implausible reducing the cost of labor by 15-20 percent will lead to a measurable increase in the demand for labor. It would have useful to include the views of an economist who could discuss the probability of success of this tax credit.

--Dean Baker

USA Today told readers that spending for the Obama administration's new jobs tax credit would come from unspent TARP money. Actually, the spending will add to the deficit just like any other spending. The TARP money is budgeted as being returned to the Treasury. It makes no difference whatsoever whether the money is said to come from TARP or not, it has the exact same impact on the budget and debt.

It also would have been worth citing the extensive research on the minimum wage in the context of assessing the likely impact of this tax credit. This research shows that the demand for labor is not very responsive to moderate changes in the cost of labor. That meant, for example, that the 20 percent increase in the cost of low-wage labor associated with the 1996-1997 minimum wage increase had no measurable effect on employment. This implies that a 15 percent or so decrease in the cost of labor that would be associated with this tax credit is likely to have no measurable effect on employment.

--Dean Baker

The headline of a Post article on the decision to raise the debt ceiling told readers that the new limit was a "record." Of course every increase in the debt limit is a record. That is why the debt limit is raised, the debt is rising above its prior level. The first sentence continues the editorializing by telling readers that the debt is at a "historic high."

The only meaningful way to measure debt through time is relative to the size of the economy. The Congressional Budget Office projects that ratio of publicly held debt to GDP will be 60.3 percent at the end of fiscal 2010. By comparison, it was 108.6 percent at the end of 1946. Including the money owed to Social Security and other trust funds the ratio of debt to GDP would be 90.2 percent at the end of 2010. This compares to a ratio of total debt to GDP of 121.7 percent in 1946.

The claim of a record or historic high would be meaningful if the debt was at a record relative to GDP, but of course it isn't true. This is just another case of the Post using its news pages to complain about the deficit.

--Dean Baker

Alan Blinder tells NYT readers this morning that thanks to Bernanke's adept handling of the crisis, the economy recovered much more rapidly than anyone anticipated:

"The economy was nearly in free fall during the last quarter of 2008 and the first quarter of 2009, dropping by 5.4 percent and 6.4 percent in real terms, respectively.

Then the moves by the Fed and the Obama administration took hold: G.D.P. barely declined in the second quarter of 2009; and by the third quarter it began to rise. As this was happening, the job loss rate, which was staggering last winter, fell by more than three-quarters. On Friday we will get the initial estimate of fourth-quarter G.D.P. growth, which analysts expect to top 5 percent. And there is a good chance that job growth is about to resume.

This rapid improvement came faster than almost anyone expected."

Is that so? Let's see, if we go to the Congressional Budget Office's projections made in January of 2009, in the middle of the crisis, they were predicting that in the absence of fiscal stimulus, the economy would grow 1.5 percent in 2010, with the unemployment rate peaking at just over 9.0 percent. The incoming Obama administration had a slightly more optimistic forecast with the unemployment rate just edging 9.0 percent, assuming no fiscal stimulus.

These projections were typical of the projections made at the time by public and private forecasters. So, when Alan Blinder tells us that "this rapid improvement came faster than almost anyone expected," who is the "anyone" in the sentence?

The reality is that the economy did worse even with the benefit of President Obama's stimulus package than it was projected to do in the absence of stimulus. In other words, in spite of Bernanke's "superlative" performance in the post-Lehman period, the economy has done worse, not better, than expected.

--Dean Baker

The Post began an article on Treasury Secretary Timothy Geithner's political troubles by telling readers that:

"When Timothy F. Geithner emerged as the leading candidate for Treasury secretary in late 2008, he privately urged Barack Obama to think twice about whether to hire him. Geithner had been a key architect of the government's bailout of Wall Street and would carry that history into the new job, he reminded the incoming president."

While this assertion appears at the very top of the article, framing it as a piece about a hard-working public servant, it is only near the end of the piece that we discover that the source of this information was Treasury Secretary Timothy Geithner. Given that the article's only source was a person who had a strong motivation to paint himself in a positive light, it would have been better judgment not to feature his alleged warnings to President Obama so prominently in the article.

--Dean Baker

North Dakota Senator Kent Conrad is threatening to hold up a vote on raising the debt ceiling if the rest of the Senate doesn't agree to form a deficit commission that goes around normal congressional procedure (and give him a lollipop). If he manages to obstruct the increase in the debt ceiling then the United States will soon lack the money to meet its various obligations, including interest payments on the debt. Any senator could threaten to force a default to get their pet project, but most other senators have not resorted to such extraordinary efforts at blackmail. It would have been useful if the Post had more clearly explained Mr. Conrad's threat to readers.

--Dean Baker

The NYT had an article discussing President Obama's plan to set up a commission to propose recommendations for reducing the deficit. At one point the article refers to the debate: "over the nation’s rising debt and its causes and solutions."

There really is not much basis for debate over the cause of the debt. The debt has grown rapidly in the last two years because of the recession created by the collapse of the housing bubble. The debt would be much lower today if the deficit hawks had not been dominating public debate and distracting attention from the housing bubble in the years when it was growing to dangerous levels.

Over the longer term, the deficits are projected to be unsustainable due to the growth of health care costs in the United States. Since the United States pays for more than half of its health care through public programs like Medicare and Medicaid the failure to fix the health care system will also lead to serious budget problems.

As with evolution, there really is not much room for debate on the factors driving the deficit (the big rise in military spending also was an important factor in the deficits). It is misleading to imply that there is.

--Dean Baker

Thomas Friedman gives readers a lecture on adult and childish behavior in his column today. In the latter category is the opposition to the reappointment of Ben Bernanke as Federal Reserve Board chairman.

It is worth noting that Bernanke ignored the growth of the housing bubble, the collapse of which has given us the worse downturn since the Great Depression. It is difficult to imagine a more disastrous failure by a Fed chair than pushing the economy to the brink of collapse, which Mr. Bernanke told Congress was the result of his policies.

Adults expect to be held accountable for their performance and hold others accountable. Mr. Friedman's lecture is more than a little off-base on this one.

--Dean Baker

The NYT gave us a dose of bipartisan nonsense on its oped pages when it ran a piece by Senators Schumer and Hatch that called for giving employers a tax credit equal to the 6.2 percent employers' side contribution for Social Security on people hired this year. The problem with this idea is that there is a large body of research, most of it connected with the increases in the minimum wage, that shows that labor demand is not very responsive to changes in the cost of labor.

If raising the minimum wage by 15-20 percent doesn't cause employers to hire fewer workers, then there is no reason to believe that cutting the cost of labor by 6.2 percent will lead them to hire more workers. There may be some substitution with longer term unemployed being hired instead of new entrants as a result of this tax credit, since it would only apply to people who have been out of work for at least six months, but it is just silly to imagine that it can have any noticeable impact on employment.

The NYT should have known better in choosing its pieces, even if the authors are senior senators. (Schumer also should have known better as a support of past minimum wage hikes.)

--Dean Baker

Fox on 15th ran another front page editorial whining about the budget deficit today. The editorial begins: "Under mounting pressure to rein in mammoth budget deficits, President Obama will propose in his State of the Union address a three-year freeze on federal funding that is not related to national security,..." A real news story would have left out the word "mammoth" which conveys the newspaper's view, but provides readers with no information.

The article then describes President Obama's proposal to freeze spending on the domestic discretionary portion of the budget and tells readers that:
"discretionary spending -- which unlike entitlement spending is approved annually by Congress -- has risen rapidly over the past decade, by about 7.5 percent a year, according to the bipartisan Committee for a Responsible Federal Budget."
Instead of relying on the "bipartisan Committee for a Responsible Federal Budget," the Post could have examined the data from the non-partisan Congressional Budget Office (Table 1-3), which shows that non-defense discretionary spending rose by 6.0 percent annually from 1998-2008. That is slightly less rapid than the rate of growth of entitlement spending over this period and considerably less rapid than the rate of growth of defense spending, which is never mentioned in this piece. Non-defense discretionary spending has risen rapidly in the last two years, although this has been primarily the result of stimulus policies intended to counteract the recession.

Remarkably, the piece never once mentions the recession in its discussion of the deficit, even though it is the major reason it has grown to "mammoth" proportions. However, the article did give a spokesperson for House Minority Leader John Boehner the opportunity to mock the proposal for a spending freeze: "given Washington Democrats' unprecedented spending binge, this is like announcing you're going on a diet after winning a pie-eating contest." The piece found no room for any political figure or economist to provide an alternative perspective on the deficit.

--Dean Baker

Given the bias in its news coverage it should hardly be a surprise that the Washington Post editorial board endorsed Ben Bernanke for another term as Fed chairman. Still, the arguments in its editorial are worth noting.

To begin with, the title of the piece "scapegoat at the Fed," should give everyone a good laugh to start the week. Umm, isn't Mr Bernanke the Fed chairman and before he took over in 2006 one of the seven members of the Board of Governors? Isn't it the Fed's job to maintain full employment? Is 10 percent unemployment full employment?

The fact is that Bernanke either failed to see or opted not to counteract an $8 trillion housing bubble. Any competent economist could see that the collapse of this bubble would wreck the economy. How can you possibly fail more completely in a job than Mr. Bernanke has? How is holding him responsible for his job performance making him a scapegoat?

But wait, the editorial gets even better: "The prospect that the Fed-bashers might actually come up with the votes to thwart Mr. Bernanke sparked a sell-off on Wall Street and prompted more than a little head-scratching among U.S. trade and investment partners abroad. "

Wow, a sell-off on Wall Street, not that is getting really serious. Ten million people have lost their jobs, 20 million homeowners are underwater. That's okay, but a sell-off on Wall Street; oh my God, what is the world coming to?
And those head scratching foreign investors, this really sound awful.

Then we get the lecture:

"But the issue now is much bigger than whether Mr. Bernanke gets another term. By threatening his tenure for no apparent reason other than political panic and pandering, his new opponents have turned this confirmation process into a test of central bank independence, which is an indispensable element of modern economic management."

Actually, the Post has a difficult time understanding what is and is not an indispensable element of modern economic management because apparently they still have not heard about the housing bubble. The real story here is that the Fed and other central banks were not sufficiently independent of the financial industry to crack down the practices that propelled the bubble to ever more dangerous levels.

A responsible Fed must have the power to crack down on the Goldman Sachs and Citigroups when their profit making bonanzas threaten the economy. Bernanke and his predecessor gave the Wall Street boys a green light to wreck the economy. If there is any hope that any future Fed chair will stand up to the financial industry then Bernanke must be fired for his failure to do so when it was so obviously necessary.

One final point that is worth noting. The Post was absolutely gleeful at the prospect of UAW workers losing their jobs when the Big Three auto companies were on the edge of collapse in 2008. It wrote editorials expressing outrage that these people were paid $56,000 a year.

The Big Three have never had an auto worker who failed so completely on the job as Ben Bernanke who, by the way, gets considerably more than $56,000 a year.

--Dean Baker